Institute for Mathematical Behavioral Sciences

Individuals receive a signal about the unknown state of the world and decide upon a utility maximizing recommendation on the basis of that signal. The group’s decision maximizes the same utility function based on perfect pooling of individual information. With no restrictions on the information structure, the individually optimal decisions place no constraints on the group’s decision. In a monotone environment in which individuals receive conditionally independent signals, the paper presents conditions under which polarization does and does not arise. Journal of Economic Literature Classification Numbers: A12, D01; Keywords: statistical decision problem; group polarization; behavioral economics; psychology.