Group Decisions and Asymmetric Payoffs: Risky Tax Avoidance in the Laboratory

Abstract

This paper investigates the dynamics of group decisions on risky tax avoidance strategies in a laboratory experiment. To identify how groups reach consensus, we compare individual to group decisions in three scenarios. The first scenario allocates the payoffs from group decisions equally to all members of the group. The second and third scenarios introduce asymmetric payoffs as a new factor of group dynamics. In these scenarios, we distinguish asymmetry in the distribution of costs and benefits, i.e., either costs or benefits are shared unequally among group members. The introduction of asymmetric payoffs allows us to separate shared consequences and communication as key drivers of group decision-making. The separation of cost and benefit sharing further allows us to separately discuss three different reasons that have been suggested by prior research to cause differences between individual and group decisions, i.e. rationality, social responsibility, and conformity. The results of the study demonstrate that the magnitude of the difference between individual and joint tax avoidance is reduced by an asymmetric payoff allocation. Regardless of the distribution of payoffs, however, group unanimity decisions align with a strong preference for conformity among group members.

Keywords: Group, asymmetric payoffs, tax avoidance, risk-taking, conformity JEL classification: C91, C92, D81, H26

JEL Classification: C91, C92, D81, H26