Chapter Three, Part V

What makes information cascades interesting is that they are a form of aggregating information, just like a voting system or a market. And the truth is that they don’t do a terrible job of aggregation. In classroom experiments, where cascades are easy to start and observe, cascading groups pick the better alternative about 30 percent of the time, which is better than any individual in the groups can do. The fundamental problem with cascades is that people’s choices are made sequentially, instead of all at once. There are good reasons for this—some people are more cautious than others, some are more willing to experiment, some have more money than others. But roughly speaking, all of the problems that cascades can cause are the result of the fact that some people make their decisions before others. if you want to improve an organization’s or an economy’s decision making, one of the best things you can do is make sure, as much as possible, that decisions are made simultaneously (or close to it) rather than one after the other. -

An interesting proof of this can be found in one of those very classroom experiments I just mentioned. This one was devised by economists Angela Hung and Charles Plott, and it involved the time-honored technique of having students draw colored marbles from urns. In this case, there were two urns. Urn A contained twice as many light marbles as dark ones. Urn B contained twice as many dark marbles as light ones. At the beginning of the experiment, the people in charge chose one of the two urns from which, in sequence, each volunteer drew a marble. The question the participants in the experiment had to answer was: Which urn was being used? A correct answer earned them a couple of dollars.

To answer that question, the participants could rely on two sources of information. First, they had the marble they had drawn from the urn, If they drew a light marble, chances were that it was from Urn A. If they drew a dark marble, chances ar that it was from Urn B. This was their “private information,” because no one was allowed to reveal what color marble they had drawn. All people revealed was their guess as .to which urn was being used. This was the second source of information, and it created a potential conflict. If three people in front of you had guessed Urn B, but you drew a light marble, would you still guess Urn A even though the group thought otherwise?

Most of the time the student in that situation guessed Urn B, which was the rational thing to do. And in 78 percent of the trials, information cascades started. This was as expected. But then Hung and Plott changed the rules. The students still drew their marbles from the urn and made their decisions in order. But this time, instead of being paid for picking the correct answer, the students got paid based on whether the group’s collective answer—as decided by majority vote—was the right one. The students’ task shifted from trying to do the best they could individually to trying to make the group as smart as it could be.

This meant one thing had to happen: each student had to pay more attention to his private information and less attention to everyone else’s. (Collective decisions are only wise, remember, when they incorporate lots of different information.) People’s private information, though, was imperfect. So by paying attention to only his own information, a student was more likely to make a wrong guess. But the group was more likely to be collectively right. Encouraging people to make incorrect guesses actually made the group as a whole smarter. And when it was the group’s collective accuracy that counted, people listened to their private information. The group’s collective judgment became, not surprisingly, significantly more accurate than the judgments of the cascading groups.

Effectively what Hung and Plott did in their experiment was remove (or at least reduce) the sequential element in the way people made decisions, by making previous choices less important to the decision makers. That’s obviously not something that an economy as a whole can do very easily—we don’t want companies to have to wait to launch products until the public at large has voted yea or nay. Organizations, on the other hand, clearly can and should have people offer their judgments simultaneously, rather than one after the other. On a deeper level, the success of the Hung and Plott experiment—which effectively forced the people in the group to make themselves independent—underscores the value and the difficulty of autonomy. One key to successful group decisions is getting people to pay much less attention to what everyone else is saying.

1 comment:

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