Archive for the ‘Group Decision Making’ Category

I always make investment decisions by myself and not as part of a group. This is because there are some major problems with group decision-making.

One major problem is that it is likely to increase the confidence I have in an investment decision without leading to any greater accuracy in that decision (confirmation bias).[1] This occurs simply because the group repeats a particular opinion. The more you hear a particular opinion the more likely you are to believe the opinion is correct.

Another major problem with group decision-making is that it can cause a polarisation of my opinions.[2] That is I think that something is either right or wrong. An important part of my investment process is estimating the upside, central case and downside scenarios for a business and attaching realistic probabilities to those scenarios. If my views become polarised I may not attach realistic probabilities to these scenarios.

Yet another problem with group decision-making is that I may suffer from an information cascade.[3] That is I may abandon my views on a business, and choose to agree with others in the group, because I think a group must know more than I do.

[1] P212, ‘Behavioural Investing’, James Montier, 2007.

[2] Ibid, P214.

[3] Ibid.

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