Despite assumptions to the contrary, group decisions are usually more extreme than individual decisions, argues Adrian Furnham
Most people think that group - as opposed to individual - decisions are more considered, moderate and wise. Put people into a committee, jury or advisory panel and they will thoughtfully come to a more balanced decision; the via media, the clever compromise. This is, however a widely held myth: the research indeed suggests the opposite. Group decisions are usually more extreme than the aggregated (but not discussed) decisions of individuals.
The research shows clearly (Isenberg, 1986, Leenders and van Dijk, 2016) that groups do not tend to encourage compromise, safe and cautious decisions but rather the opposite, namely risky decisions. There are some caveats but generally that is true.
This effect was discovered over 60 years ago by James Stoner, who gave people a number of questions.
Consider the following which remains today the most well-known and celebrated:
Mr A, an engineer who is married and has one child, has been working for a large manufacturing corporation since graduating from university five years ago. He is assured of a life-time job with a modest, although adequate, salary and liberal pension benefits upon retirement. On the other hand, it is very unlikely that his salary will increase much before he retires. While attending a conference, Mr A is offered a job with a small, newly founded company, which has a highly uncertain future. The new job would pay more to start and would offer the possibility of a share in the ownership if the company survived the competition of the larger firms.
Imagine that you are advising Mr A. Listed below are several probabilities or odds of the new company’s proving financially sound. Please check the ¬lowest probability that you would consider acceptable to make it worthwhile for Mr A to take the new job:
• The chances are 1 in 10 that the company will prove financially sound.
• The chances are 3 in 10 that the company will prove financially sound.
• The chances are 5 in 10 that the company will prove financially sound.
• The chances are 7 in 10 that the company will prove financially sound.
• The chances are 9 in 10 that the company will prove financially sound.
• Please check here if you think Mr A should not take the new job no - matter what the probabilities.
The experiment requires people do the task alone and/or to discuss it in a group, perhaps after making an initial decision, so that we can compare the result of the group discussion. Thus, if four individuals recommended that the riskier courses of action be taken if the odds of success were 30 per cent, a group composed of these same individuals might have recommended that the riskier course of ¬action be taken if the odds of success were lower, say, at 10 per cent. Because of this shift in the direction of riskiness by groups compared with individuals, the phenomenon became known as the risky shift.
The risky shift is a form of “group polarisation” - the tendency of group members to decide on a more extreme course of action than would be derived by the average of their individual judgement. Group polarisation means the average post-group response will tend to be more extreme in the same direction as the average of the pre-group responses Therefore, when the average choice of the group members before discussion is closer to the cautious pole of the continuum than the risky pole, a cautious shift may occur. Thus adventurous risk-taking individuals are far more likely to experience the shift in the risky direction.
Some groups tend to make more cautious or conservative decisions if the prevailing norm swings them that way. Put people among like-minded others and they tend to become more extreme. Think Brexit debate.
How polarisation occurs
So why do groups shift to risk or caution? Often, group discussion generates ideas and arguments novel to individuals. These new data provide excellent justification for individuals’ ¬initial tendencies, towards either risk or conservatism. These discussions therefore provide more and often better reasons for one’s initial decision (to risk or -caution), thereby exaggerating it.
Usually, the prevailing norms of the culture - determine which way groups will go (towards caution or risk). Thus, if the corporate culture prescribes being adventurous with regard to business but cautious and risk-averse with regards to safety, decision groups will increase risky business decisions but be highly cautious on safety decisions.
Group members also like to offer themselves as first among equals – that is similar to, but better than, the group. One such way of doing this is to upstage others in a discussion favouring the more extreme of the preferred and group-accepted decisions. You get “hero-points” for this behaviour!
Also, with the diffusion of ¬responsibility in groups it is easier to be more extreme because individual responsibility is lessened. This is indeed why we have so many committees at work: not to make better decisions but to ensure there are many to blame when things go wrong.
So groups polarise for two reasons;
• Social comparison: People compare themselves with others and endorse strong cultural values to gain approval. This has sometimes been called virtue signaling. Thus, they would shift to caution over issues of child protection, environmental pollution, and safety issues, but shift to risk over personal issues such as job changes.
• Persuasive information: It is possible that discussions yield useful information that appears to accumulate in favour of one side.
• Social Identity and Acceptance: We define ourselves often in group terms like nationality, occupation, language group. The more eager we are to identify with a desirable group the more publically we endorse the ideas of that group
Clearly, the effects of risky/caution shift and group polarisation have important implications for organisational decision-making.
Group polarisation effects are indeed real; they may cause a group to ¬become either more conservative or more risky, depending on the initial opinions of the majority of group members. When emphasis is placed on reaching a consensus, group members are more likely to shift their positions. Moreover, polarisation is more likely to occur during active group discussions, although it should be pointed out that it does not always, of necessity, occur.
Implications
So what are the implications for asset management and decisions about finances? Asset managers, like all of us, have different appetites for risk. They probably seek each other out, feeling more comfortable around people who share their values and position on the appetite spectrum. They may consult each other on an individual basis, but they may also make the final decision in groups, partly to diffuse possible blame for failure. Hence the term blame-storming meetings to seek out culprits and scape-goats for bad decisions
If that is the case that we seek out PLUs (People like us) the decisions are likely to be more extreme…contrary to popular wisdom. And they may get stuck in a grove, always opting for the same sort of outcomes irrespective of the nature of the problem.
Time, perhaps to think of changing the composition of the group or the way at arriving at a decision.
Adrian Furnham is the principal behavioural psychologist at Stamford Associates in London, and author of several books on behavioural psychology.