Working Paper: CEPR ID: DP4423
Authors: Kfir Eliaz; Debraj Ray; Ronny Razin
Abstract: The phenomenon of choice shifts in group decision-making is fairly ubiquitous in the social psychology literature. Faced with a choice between a ?safe? and ?risky? decision, group members appear to move to one extreme or the other, relative to the choices each member might have made alone. Both risky and cautious shifts have been identified in different situations. This Paper demonstrates that from an individual decision-making perspective, choice shifts may be viewed as a systematic violation of expected utility theory. We propose a model in which a well-known failure of expected utility ? captured by the Allais paradox ? is equivalent to a particular configuration of choice shifts. Thus, our results imply a connection between two well-known behavioural regularities, one in individual decision theory and another in the social psychology of groups.
Keywords: Allais Paradox; Cautious Shift; Choice Shifts; Group Decision-Making; Risky Shift
JEL Codes: D70; D71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| disappointment aversion (D81) | choice shifts in group decision-making (D71) |
| group dynamics (C92) | individual decision-making preferences (D91) |
| expectation of risky outcome (D81) | risky shift (C92) |
| expectation of safe outcome (J28) | cautious shift (J62) |