Teams Take the Better Risks

SFB 303 Working Paper No. B-452

Posted: 27 Oct 1999

See all articles by Bettina Kuon

Bettina Kuon

University of Bonn

Barbara Mathauschek

University of Bonn

Abdolkarim Sadrieh

University of Magdeburg

Date Written: March 1999

Abstract

Many important economic and political decisions are made by teams. In the economic literature, however, the decision units are frequently modeled as individual economic agents. The paper experimentally investigates the question to what extent observed team decisions under risk are actually consistent with the principles of rational choice, specifically the principles of Expected Utility Theory (EUT) and of Portfolio Selection Theory (PST). The experiment is performed with individuals and teams. We find almost no evidence for the greater compliance of team decisions than of individual decisions with the principles of EUT. However, there is substantial evidence for the consistency of team decisions with the PST. Compared to individuals, teams accumulate significantly more expected value at a significantly lower total risk (measured in SD). We introduce a team decision algorithm, excess-risk vetoing, that combines simple majority voting with the right to veto alternatives providing additional risk that is not compensated by additional expected value. We find that the results of our experiment are well explained by the excess-risk vetoing.

JEL Classification: C91, C92, D81, D70, M10

Suggested Citation

Kuon, Bettina and Mathauschek, Barbara and Sadrieh, Abdolkarim, Teams Take the Better Risks (March 1999). SFB 303 Working Paper No. B-452, Available at SSRN: https://ssrn.com/abstract=182774

Bettina Kuon (Contact Author)

University of Bonn ( email )

Postfach 2220
Laboratorium fur experimentelle Wirtschaftsforschung
53113 Bonn
Germany
++49-228 73-9195 (Phone)
++49-228 73-9193 (Fax)

Barbara Mathauschek

University of Bonn ( email )

Postfach 2220
Laboratorium fur experimentelle Wirtschaftsforschung
53113 Bonn
Germany
++49-228 73-9194 (Phone)
++49-228 73-9193 (Fax)

Abdolkarim Sadrieh

University of Magdeburg ( email )

Faculty of Economics and Management
Postbox 4120
39016 Magdeburg
Germany

HOME PAGE: http://www.ww.uni-magdeburg.de

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