Experiment vindicates group decision-making

Do individuals or committees make the best decisions? Former U.S. Federal Reserve Board vice chairman Alan Blinder had come to the conclusion that the committee nature of Fed deliberations slowed down its response to changing economic conditions. But he had no
proof.

So he and Princeton University colleague John Morgan set up two experiments to get the answer.

One experiment had participants testing their speed and accuracy in predicting the order in which a computer would draw red or blue balls from an urn. The second sought to mimic deliberations at the Federal Reserve Board.

The first experiment revealed that groups and individuals reached decisions equally quickly – regardless of whether unanimity or majority rule was required.

Groups were one-third less likely than individuals to guess the wrong colour of balls withdrawn from the urn – and groups, on average, erred just 11 percent of the time versus 16 percent of the time for individuals.

Despite the different set-up of the second or Fed experiment, the results mirrored the urn experiment – groups made decisions as quickly as individuals, and more accurately.

Blinder says the results suggest "that the interaction that takes place in a group does improve the decision-making, so a group should not have just one person decide."

Bob Woodward's best-seller "Maestro" depicts Fed chairman Alan Greenspan as God on a good day – rarely making a mistake and winning over recalcitrant governors. Some economists contend that the Blinder-Morgan study suggests even a maestro performs better with an orchestra than without it.

Source: Alan B. Krueger (Princeton University), Economic Scene: A Study Shows Committees Can be More than the Sum of their Members, New York Times, December 7, 2000.

For text http://www.nytimes.com/2000/12/07/business/07SCEN.html

For more on Federal Reserve http://www.ncpa.org/pd/economy/econ6.html