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Group decisions are not risk-free
- Groups are better equipped than individuals to recognize an answer as correct. But, when the whole group is susceptible to similar biases, groups are inferior to individuals.
- Polarization can occur in groups. One major bias in risky decision making is optimism, while doubts are suppressed. If an individual in a group is thinking differently to the group, it is easy to understand how they would suppress themselves.
- However, in groups of competing individuals, such as the corporate investment committee, the different dynamics can lead to better decision-making.
- In an internal marketplace where groups come to a consensus about the risks and rewards associated with their decisions, internal incentives can shape how the group perceives risks and rewards that are different from the reality of the risks and rewards in the external marketplace. The incentives can distort risk perception.
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