On the Composition of Committees

This article is concerned with the role of committees in collectivedecision making processes in a world where agents must be motivatedto collect information. Committees improve the quality of decisionmaking by providing information and by coordinating the collectionof information. We address two types of questions. First, howdoes the composition of a committee affect final decisions?Second, what is the optimal composition of a committee fromthe decision maker's point of view? As to the latter question,we show that the cost of information collection plays an importantrole. If this cost is low, then the preferences of the committeemembers should be aligned to those of the decision maker. Memberswith similar preferences as the decision maker collect the properpieces of information. Moreover, manipulation of informationdoes not occur if the preferences of the decision maker andthe members are consonant. If the cost of searching is high,then the committee should be composed of members with polarizedpreferences. Outliers have a strong incentive to search forinformation.     

Eliciting information from a committee

The paper addresses the mechanism design problem of eliciting truthful information from a committee of informed experts who collude in their information disclosure strategies. It is shown that under fairly general conditions full information disclosure is possible if and only if the induced outcome is Pareto undominated for the committee members.     

Researching Preferences,Valuation and Hypothetical Bias

A number of recent papers in environmental economics have focused on the process of researching preferences – agents are uncertain about preferences but with effort may narrow their uncertainty. This issue has arisen in formulating bids in contingent valuation (CV) as well as the debate over the divergence between WTP and WTA. In the context of CV, it has been suggested that the hypothetical nature of the preference elicitation process biases responses. This paper provides both a theoretical model and experimental evidence to contribute to this debate. The model is a model of competitive bidding for a private good with two components that are particularly relevant to the debate. The first component is that bidders are unsure of their own value for the private good but may purchase information about their own value (researching preferences). The second component is that there is a probability that the auction is hypothetical – that the winning bidder will not get the private good and will not pay the winning bid. The experiment tests this theoretical model of bidding equilibrium and analyzes the effects of variations in the parameters (hypotheticalness, information costs and number of agents) on the endogenous variables (such as the proportion of bidders who become informed and the winning bid). Experimental results suggest that an increase in the hypotheticalness of an auction tends to decrease the likelihood that bidders pay for information on their valuation with an ambiguous effect on the winning bid.      

Voting in small committees

We analyze the voting behavior of a small committee that has to approve or reject a project proposal whose return is uncertain. Members have diverse preferences: some of them want to maximize the expected value, while others have a bias towards project approval and ignore their information on the project value. We focus on the most efficient use of scarce information when members cannot communicate prior to voting, and we provide insights on the optimal composition of the committee. Our main result is that the presence of biased members can improve the voting outcome, by simplifying the strategies of unbiased members. Thus, committees with diverse members perform as well as homogeneous committees, and even better in some cases. In particular, when value-maximizing members outnumber biased members by one vote, the optimal equilibrium becomes unique.     

Behavioral economics: implications for regulatory behavior

Behavioral economics (BE) examines the implications for decision-making when actors suffer from biases documented in the psychological literature. This article considers how such biases affect regulatory decisions. The article posits a simple model of a regulator who serves as an agent to a political overseer. The regulator chooses a policy that accounts for the rewards she receives from the political overseer—whose optimal policy is assumed to maximize short-run outputs that garner political support, rather than long-term welfare outcomes—and the weight the regulator puts on the optimal long run policy. Flawed heuristics and myopia are likely to lead regulators to adopt policies closer to the preferences of political overseers than they would otherwise. The incentive structure for regulators is likely to reward those who adopt politically expedient policies, either intentionally (due to a desire to please the political overseer) or accidentally (due to bounded rationality). The article urges that careful thought be given to calls for greater state intervention, especially when those calls seek to correct firm biases. The article proposes measures that focus rewards to regulators on outcomes rather than outputs as a way to help ameliorate regulatory biases.     

A model of boundedly rational “neuro” agents

We consider a model in which each agent in a population chooses one of two options. Each agent does not know what the available options are and can choose an option only after observing another agent who has already chosen that option. In addition, the agents’ preferences over the two options are correlated. An agent can either imitate an observed agent or wait until he meets two agents who made different choices, in which case he can compare their choices and choose accordingly. A novel feature of the model is that agents observe not only the choices made by others, but also some information about the process that led them to those choices. We study two cases: In the first, an agent notes whether the observed agent imitated others or whether he actually compared the available alternatives. In the second, an agent notes whether the observed agent’s decision was hasty or not. It is shown that in equilibrium the probability of making a mistake is higher in the second case and that the existence of these nonstandard “neuro” observations systematically biases the equilibrium distribution of choices.     

Storable votes

Motivated by the need for more flexible decision-making mechanisms in the European Union, the paper proposes a simple but novel voting scheme for binary decisions taken by committees that meet regularly over time. At each meeting, committee members are allowed to store their vote for future use; the decision is then taken according to the majority of votes cast. The possibility of shifting votes intertemporally allows agents to concentrate their votes when preferences are more intense, and although the scheme will not achieve full efficiency, storable votes typically lead to ex ante welfare gains over non-storable votes. Welfare gains can be proven rigorously in the case of 2 voters. With more voters, counterexamples can be found, but the analysis suggests that the welfare improvements should continue to hold if one of the following conditions is satisfied: (i) the number of voters is above a minimum threshold; (ii) preferences are not too polarized; (iii) the horizon is long enough.     

Trust, trustworthiness, and risk in rural Paraguay

This dissertation looks at the relationship between trust, trustworthiness, and risk aversion in a rural Paraguayan setting. The first chapter of this dissertation looks at theft between farmers. Rural areas of developing countries often lack effective legal enforcement. However, villagers who know each other well and interact repeatedly may use implicit contracts to minimize crime. I construct a dynamic limited-commitment model in which a thief cannot credibly commit to forego stealing from his fellow villagers but may be induced to limit his stealing by the promise of future gifts from his potential victim. Using a unique survey from rural Paraguay which combines traditional data on production with information on theft, gifts, and trust, as well as with experiments measuring trust and trustworthiness, I test whether the data is consistent with predictions from the dynamic model. The results provide evidence that, in contrast with predictions from a one-period model with an anonymous thief, farmers do implicitly contract with one another to limit theft. Farmers who have more close family members in their village give fewer gifts, and farmers with plots which are more difficult to steal from give fewer gifts, experience less theft, and trust more. Gift-giving increases when trust is lower and the threat of theft is greater, turning the social capital literature on its head. The second chapter of this dissertation looks at a different linkage between trust, trustworthiness, and risk. Trusting behavior in general and play in the traditional trust experiment specifically depend both on trust beliefs and on levels of risk aversion. I ran two experiments with a diverse set of subjects in fifteen villages of rural Paraguay, the traditional trust experiment and a new experiment measuring only risk aversion. I find that risk attitudes are highly predictive of play in the trust game. In addition, omitting risk aversion as a regressor in trust regressions significantly changes the coefficients of important explanatory variables such as gender and wealth. The chair of this dissertation committee was Ethan Ligon and the other committee members were George Akerlof and Elisabeth Sadoulet.     

Name-Based Behavioral Biases: Are Expert Investors Immune?

The market comprises investors with a broad range of expertise. As a result, investors may make decisions differently from one another. Research reveals that investors use name-based heuristics, or short-cuts, including alphabetical ordering (Itzkowitz, Itzkowitz, and Rothbort []), name fluency (Anderson and Larkin [], Green and Jame []), and name memorability (Grullon, Kanatas, and Weston []) when trading stocks, resulting in irrational decisions. Because experts and novices process information differently, name-based biases may not affect all investors equally. The authors test and confirm the hypothesis that, compared to novices, expert investors are relatively immune to name-based biases.     

On the learnability of majority rule

We establish how large a sample of past decisions is required to predict future decisions of a committee with few members. The committee uses majority rule to choose between pairs of alternatives. Each member's vote is derived from a linear ordering over all the alternatives. We prove that there are cases in which an observer cannot predict precisely any decision of a committee based on its past decisions. Nonetheless, approximate prediction is possible after observing relatively few random past decisions.     

Inferring hawks and doves from voting records

We analyze revealed policy preferences of the Monetary Policy Committee of the Bank of England. From the voting records we estimate the policy preferences with spatial models of voting. We find that internal committee members tend to hold centrist policy preferences, while more extreme policy preferences, both hawkish and dovish, are generally held by external members. An industry background is associated with more hawkish preferences.     

Optimal agenda-setter timing

Abstract .  We analyze the optimal timing problem of an agenda setter who can propose a project that is then voted on by a committee. The payoff consists of a common stochastic component and an idiosyncratic component that differs among committee members. The agenda setter may be biased for or against the project, relative to the median committee member, and chooses when to call the vote. We analyze how the timing decision depends on the political environment and the bias of the agenda setter. We show that both positively and negatively biased agenda setters can implement decisions that differ from those preferred by the median committee member.     

权威分配和信息传递

在成员间有利益冲突的情况下,授权是激励组织中成员释放其私人信息的一个重要方式。本文考察了在对多人授权时,权威分配的方式对于信息释放的影响。本文考虑了两种分配方案的影响。其一是所有的成员在形式上有同等的权威(委员会);其二是,某一个成员有全部的决策权威(科层制)。委员会的决策规则虽然在形式上是平等的,但在实质上却可能偏向于某个成员。科层制则在形式上就完全偏向于它的领导。本文表明,权威的集中分配放大了利益冲突的影响。并且,权威分配的形式上的偏向有支配性的作用:它压倒了利益冲突以及实质偏向的影响。     

Perverse committee appointments may foster divide and rule

A plurality-rule spatial committee can select an extreme decision if a bare minority of members prefer the opposite extreme decision: the majority who prefer a moderate decision are immobilised by internal divisions. Consequently, a nominator may appoint candidates with the opposite preference ordering so as to build up the bare minority. Our results may explain why Disraeli extended the franchise to skilled male workers in 1867 against centrist opposition; and why an electorate whose preferences are not polarized may have to choose between extremist candidates.     

Externalities,communication and the allocation of decision rights

The assignment of authority entitles the decision maker to undertake decisions that impose externalities on the payoffs of other members of the organization. This paper studies how the optimal allocation of decision rights depends on the preferences of the organization’s members. It adopts a mechanism-design approach to show how the communication of private information affects the efficient allocation of authority. An extension to multiple decision areas shows that decentralized control rights may enhance organizational efficiency unless there exist strong complementarities between different decisions.     

Risk and intertemporal substitution: Livestock portfolios and off-take among Kenyan pastoralists

Most decisions involve variability in two dimensions: uncertainty across states of nature and fluctuations over time. The stakes involved in tradeoffs between these variability dimensions are especially high for the poor who have difficulty managing and recovering from shocks. We assume Epstein and Zin recursive preferences and estimate risk aversion and intertemporal substitution as distinct preferences using data from Kenyan herders. Results suggest that the assumption implicit in additive expected utility models that relative risk aversion (RRA) is the inverse of the elasticity of intertemporal substitution (EIS) is flawed. Specifically, our RRA and EIS estimates are consistent with a preference for the early resolution of uncertainty, which we believe is driven importantly by the instrumental value of early uncertainty resolution. This same preference pattern is consistent with asset smoothing in response to a dynamic asset threshold.     

Trade Policy and Antitrust: Do Consumers Matter to Legislators?

We provide one of the first efforts to measure the importance of consumer preferences in legislators' trade policy decisions by estimating the degree to which the level of antitrust enforcement in the legislator's state impacts his or her vote on free trade agreements. To the extent that antitrust and trade liberalization are both viewed as pro‐consumer in nature, we would expect to see a positive relationship between antitrust enforcement in their legislative district and Congressional votes in support of trade liberalization. We find evidence suggesting that consumer preferences do play a role in legislative decisions on trade policy.     

权威分配和信息传递

在成员间有利益冲突的情况下,授权是激励组织中成员释放其私人信息的一个重要方式.该文考察了在对多人授权时,权威分配的方式对于信息释放的影响.该文考虑了两种分配方案的影响.其一是所有的成员在形式上有同等的权威(委员会);其二是,某一个成员有全部的决策权威(科层制).委员会的决策规则虽然在形式上是平等的,但在实质上却可能偏向于某个成员.科层制则在形式上就完全偏向于它的领导.该文表明,权威的集中分配放大了利益冲突的影响.并且,权威分配的形式上的偏向有支配性的作用:它压倒了利益冲突以及实质偏向的影响.     

The influence of group size on distributional fairness under voting by veto

Voting by Veto [VBV], developed by Dennis C. Mueller, is a two-stage voting mechanism for committee decision making. In the first stage, every member of the committee makes a proposal. The proposals are joined with the current status quo (or another fallback option). For the second stage, a random mechanism determines the order of voting and the committee members sequentially eliminate one alternative each. After every committee member has exercised her veto, a single winning alternative remains. Game theory predicts that the equality of the resulting distribution under VBV varies with group size. Hence, decisions in two-member groups should result in highly unequal distributions of benefits. With increasing group size, however, VBV should generate more equally distributed outcomes. We examine the effect of group size under VBV in a series of laboratory experiments where groups with a varying number of members play a ‘divide the dollar game’. Our results confirm that larger groups choose more equal distributions than smaller groups. However, we also find deviations from the model's predictions. Some committees in our experiment do not select Pareto-optimal alternatives. An exploratory analysis of possible explanations suggests that individual behavior is most likely motivated by a combination of material self-interest and social preferences such as reciprocity and fairness.