M4A 1: Discussion—The Power of Groups

Groups may be both a boon (for example, they statistically outperform individuals) and a bane (for example, they take too long) of decision making. While they can systematically outperform individuals, groups are also prey to systematic bias and organizational skewing.

Consider the systematic decision-making processes of your own organization. Using the readings for this module, the Argosy University online library resources, and the Internet, respond to the following:

• What are the group decision-making processes and structures in place at your current or with a previous employer that were designed to eliminate bias, create structure, and cultivate consistently better decisions?
• Were the processes successful? Why, or why not?
• How may the structure have facilitated organizational skewing?

Write your initial response in a minimum of 300 words. Apply APA standards to citation of sources.

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In this module, you will extend what you have learned thus far into the realm of group decision making and analyze the role it plays in organizations. In addition to group decision making, you will also explore the concept of mental accounting and consumer choices. As discussed previously, people do not always act perfectly rational. In part, this is because they aggregate gains and losses differently. Moreover, research indicates that most people tend to be adverse to risk. In fact, they are not always well adjusted in terms of their ability to estimate risk.  

As with other decision-making processes, there are pitfalls in group decision making. However, the use of groups increases the ability to diminish bias and increase objectivity when making choices. You will develop an understanding of how and why groups fail at times.

Crowds generally outperform individuals in terms of utility and the reduction of bias when making decisions so long as those crowds are appropriately structured and facilitated. However, crowd-sourced solutions have significant limitations, including considerations of deep complexity, decisions dependent on expertise, choices under duress, and choices dependent on speed. You will examine these limitations in order to better understand, as decision-makers as well as managers, how to optimize your teams and your organization in order to perform with greater precision and objectivity.

In addition to these limitations, groups are also prone to social influences. These group social influences represent both negative and positive contributions and in some cases the net result is unclear, such as in “social facilitation.”

Social facilitation refers to the tendency of some group members’ performances to improve as others decline. More specifically the performance of “above average players” tends to improve with the presence of onlookers while the performance of “below average players” tends to degrade with the presence of onlookers. In other words, those who know how to perform a given task do so with greater efficacy while they are under the glare of an audience while those who are unfamiliar with the task will unduly struggle. This clearly has ramifications on how groups assemble and how group decision making is facilitated.

Roughly two-thirds of the US economy is attributed to consumer spending or roughly 10 trillion dollars in 2010 (US Department of Commerce: Bureau of Economic Analysis, 2011). This enormous amount of capital itself as well as how it is utilized is of constant interest to marketers, economists, and political leaders. Beyond the influences of social heuristics, how do your own internal metrics and accounting principles influence your decisions and how can those practices create opportunities? In other words, what is your mental accounting?

In 1980, Richard Thaler coined the term mental accounting in an attempt to describe how people categorize and quantify economic outcomes (Thaler, 1980). Eight years later, Shefrin and Thaler proposed that mental accounting is divided into discrete repositories; these “buckets” are current income, current wealth, or future income. Moreover these buckets have some interesting qualities from a cognitive and subsequently, accounting perspective (Shefrin & Thaler, 1988).

These accounts are largely non-fungible and the marginal propensity to consume from each account is different. The implications for this are profound; how utility is evaluated varies based on the mental account used. Likewise, perception of value changes at different points in time; people are prey to subjective frames.

Adding complexity to this mix, it is true that in your mental accounting applies two values to any transaction—acquisition value and transaction value. The acquisition value is the money you will trade to physically acquire a good or service while the transaction value is the price you place on getting a good deal.

Finally, the value placed on gains and losses differs between individual mental accounting. Similar to prospect theory, people have a tendency to skew utility in order to minimize losses and maximize gains.

Mental accounting of consumer-oriented decisions, coupled with the complexity of consumer choice (imagine all the different options and financing plans on the car purchase), and the departures taken from perfect rationality all influence consumer behavior. They determine when an individual chooses to act or postpone a purchase, how he or she perceives gains and losses, and how timing bears on the individual’s choices. Marketers especially want to leverage these predilections to frame one’s perceptions and choices in nonrational ways. However, one’s personal balance between self-control and buyer’s remorse is at stake.

Shefrin, H. H., & Thaler, R. H. (1988). The behavioral life-cycle hypothesis. Economic Inquiry, 26, 609–643.

Thaler, R. H. (1980). Towards a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1, 39–60.

US Department of Commerce: Bureau of Economic Analysis. (2011). National economic accounts: National GDP. Retrieved from

http://www.bea.gov/national/#gdp