Full Professor, Colorado State University
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Background Information

Economics has focused primarily on the behavior of individual agents in strategic and non-strategic environments. Little systematic work has been done to study the behavior of groups as decision-making agents in markets and other strategic games. This may limit the applicability of accepted economic principles because many important decisions are made by groups (e.g., families, boards of directors, legislatures, and committees) rather than by individuals.

Stephen C. Hayne received his first NSF grant: SBR-7909423 ($15,000), “Group Decision-Making and the Winner’s Curse”. This grant was awarded in August 1997 and is intended for subject payments in initial baseline experiments. From this funding, 22 experiments involving 72 groups (420 subjects) in several treatment conditions have been conducted. Dr. Hayne and Dr. Cox (University of Arizona) received two more NSF grants, SES-9818561 (Cox, $142,000) and SES-9819031 (Hayne, $101,500) to further explore the problems of group bidding.

Prototypes: Work-in-Progress Results From New Theory: Working Papers:
  • Cox, J. and Hayne, S. (1998) "Group vs. Individual Decision-Making in Strategic Market Games," presented at the Economic Science Association in Mannhiem, (view paper).


    • This paper compares group and individual economic behavior. The objective of the research is to learn whether there are systematic differences between decisions made by groups and individual agents in market environments characterized by risky outcomes. A quantitative measure of deviation from minimally-rational decisions is used to compare group and individual behavior in the same strategic environments.

      Many naturally-occurring auction markets are characterized by sealed-bids for items of uncertain value, submitted by firms in which groups have determined the amounts to bid. Our research involves study of group decisions in the risky strategic environment of common value auction markets. We report results from experiments conducted to compare outcomes from individual and group bidding. If group bidding differs from individual bidding, this could result from groups having more information or, alternatively, better or worse judgment. This distinction is examined by crossing an information density (signal sample size) treatment with the bidding entity (groups or individuals) treatment.

      Inspection of the data indicates that the majority of individuals and groups are very susceptible to the winner’s curse when they are inexperienced. The more interesting data are for once- and twice-experienced subjects. These data show that both groups and individuals deviate more from rational bidding when they have more information, and that groups are more affected by this “information curse” than individuals. The data support the conclusion that, if groups inherently have more information than individuals, then groups are less rational decision-making agents than individuals in common value auctions.

  • Hayne, S., Cox, J. Emery, J.C.H. (1997) "GROUP BIDS AND THE WINNER’S CURSE," (view paper).


    • An experiment was conducted involving group decision-making through competitive bidding in a common value auction. Subjects were 420 undergraduate business students who worked under a group incentive system in an auction market size of five with groups of five persons (each with their own signal). Tie-breaking can occur in odd sized groups (if they attempt a voting strategy) and previous research defines groups as more than 3 persons. The expected loss from naive bidding by groups in markets of size five was set to be only 50% of the expected loss from naive bidding by individuals in markets of size three. Since earlier experiments had found that bidding by experienced individuals in markets of size three produced positive average profits and no winner’s curse, this experiment was biased against significant occurrence of the winner’s curse. Our results show that experienced groups bid irrationally and realized large losses
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