Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making

Bank of England Working Paper No. 165

40 Pages Posted: 19 Mar 2003

See all articles by Clare Lombardelli

Clare Lombardelli

Bank of England - Monetary Analysis

James Proudman

Bank of England, Monetary Instruments and Markets Division

James Talbot

Bank of England - Monetary Analysis

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

We report the results of an experimental analysis of monetary policy decision-making under uncertainty. We used a large sample of economically literate undergraduate and postgraduate students from the London School of Economics to play a simple monetary policy game, both as individuals and in committees of five players. Our findings - that groups make better decisions than individuals - accord with previous work by Blinder and Morgan. We also attempt to establish why group decision-making is superior.

Our results show that some of the benefit is related to the ability of committees to strip out the effect of bad play in any given period. But there is a significant additional improvement, which we associate with the ability of committee members to share information and learn from each other by observing other members' interest rate responses. One surprising result is that the superiority of committee decision-making does not appear to be related to the ability to discuss the interest rate decision.

Keywords: Monetary policy, experimental economics, central banking, uncertainty

JEL Classification: C91, C92, E5

Suggested Citation

Lombardelli, Clare and Proudman, James and Talbot, James, Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making (September 2002). Bank of England Working Paper No. 165, Available at SSRN: https://ssrn.com/abstract=340560 or http://dx.doi.org/10.2139/ssrn.340560

Clare Lombardelli (Contact Author)

Bank of England - Monetary Analysis ( email )

James Proudman

Bank of England, Monetary Instruments and Markets Division ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

James Talbot

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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