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Two heads are less bubbly than one: team decision-making in an experimental asset market

Published online by Cambridge University Press:  14 March 2025

Stephen L. Cheung  and
Stefan Palan
Stephen L. Cheung*
Affiliation:
School of Economics, The University of Sydney, Sydney, NSW 2006, Australia
Stefan Palan*
Affiliation:
Institute of Banking and Finance, Karl-Franzens-Universität Graz, 8010 Graz, Austria
*
[email protected]
[email protected]
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Abstract

In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow’ baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind.

Keywords

Group decision-makingPrice bubblesAsset market experiments

JEL classification

G12: Asset Pricing • Trading Volume • Bond Interest Rates D70: General C92: Laboratory, Group Behavior
Type
Research Article
Information
Experimental Economics , Volume 15 , Issue 3 , September 2012 , pp. 373 - 397
Copyright
Copyright © 2011 Economic Science Association

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Footnotes

Electronic Supplementary Material The online version of this article (doi:https://doi.org/10.1007/s10683-011-9304-6) contains supplementary material, which is available to authorized users.

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