When consensus choice dominates individualism
Subtitle: Jensen's inequality and collective decisions under uncertainty
By: Charles F. Manski.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- working paper 15172; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 15172.
Publisher: National Bureau of Economic Research
Published: 2009
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "Research on collective provision of private goods has focused on distributional considerations.  This paper studies a class of problems of decision under uncertainty in which the argument for collective choice emerges from the mathematics of aggregating individual payoffs.  Consider decision making when each member of a population has the same objective function, which depends on an unknown state of nature.  If agents knew the state of nature, they would make the same decision.  However, they may have different beliefs or may use different decision criteria.  Hence, they may choose different actions even though they share the same objective.  Let the set of feasible actions be convex and the objective function be concave in actions, for all states of nature.  Then Jensen's inequality implies that consensus choice of the mean privately-chosen action yields a larger aggregate payoff than does individualistic decision making, in all states of nature.  If payoffs are transferable, the aggregate payoff from consensus choice may be allocated to Pareto dominate individualistic decision making, in all states of nature.  I develop these ideas.  I also use Jensen's inequality to show that a planner with the power to assign actions to the members of the population should not diversify.  Finally, I give a version of the collective choice result that holds with consensus choice of the median rather than mean action"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 8/17/2009.

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