Teams Take the Better Risks

Abstract

Many important economic and political decisions are made by teams. May this observation be explained by a higher compliance of team decisions with the principles of economic rationality? The paper reports an experimental comparison of individual and team decisions in situations in which individual decisions were observed to be systematically inconsistent with the principles of rational choice, in particular Expected Utility Theory (EUT) and Portfolio Selection Theory (PST). 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).