Why do groups make risky decisions?

Short Answer

Groups make risky decisions due to diffusion of responsibility, social comparison, group polarization, and the tendency to take more risks when individual accountability is reduced.

Detailed Explanation

Background

Groups often make riskier decisions than individuals would make alone, a phenomenon known as "risky shift." Understanding why groups make risky decisions helps us recognize this tendency and make better group decisions. Understanding Why do people conform in groups? reveals how group dynamics contribute to risky decisions, as conformity and group pressure can push groups toward riskier choices.

Risky group decisions can have significant consequences, from financial losses to dangerous behaviors. By understanding the mechanisms behind risky group decisions, we can implement strategies to make more balanced group choices.

Scientific Explanation

Groups make risky decisions for several reasons:

1. Diffusion of responsibility: When responsibility is shared among group members, individuals feel less personally accountable for outcomes. Reduced accountability increases willingness to take risks.

2. Social comparison: Group members compare their risk preferences to others, often shifting toward more extreme positions. Social comparison can push groups toward riskier choices.

3. Group polarization: Discussion tends to polarize group opinions, moving groups toward more extreme positions than individual members held initially. Polarization increases risk-taking.

4. Reduced accountability: Individual accountability is lower in groups, reducing fear of negative consequences. Reduced accountability increases risk tolerance.

5. Shared risk: When risk is shared, the perceived cost to any individual is lower. Shared risk increases willingness to take risks.

6. Social pressure: Group members may feel pressure to appear bold or confident, leading to riskier decisions. Social pressure can override individual caution.

7. Optimism bias: Groups may develop unrealistic optimism about outcomes, underestimating risks. Optimism bias increases risk-taking.

8. Competitive dynamics: Competition within or between groups can drive riskier decisions. Competitive dynamics increase risk-taking to gain advantage.

Understanding Why do people make impulsive decisions? reveals how group dynamics can trigger impulsive risk-taking, as group pressure and reduced accountability can override careful consideration.

Real Examples

• A group of friends decides to take a risky financial investment together, feeling less accountable because responsibility is shared, demonstrating diffusion of responsibility.

• A team makes a risky business decision after discussion polarizes opinions toward risk-taking, showing how group polarization increases risk.

• A committee approves a risky project because individual members feel less accountable for the outcome, demonstrating reduced accountability in groups.

• A group of investors takes bigger risks together than they would individually, showing how shared risk increases risk tolerance.

• A team makes a risky decision to compete with another group, demonstrating how competitive dynamics drive risk-taking.

Practical Application

How to Apply

To make better group decisions:

1. Increase individual accountability: Ensure group members feel personally accountable for decisions. Individual accountability reduces risky shift.

2. Encourage diverse perspectives: Actively seek diverse viewpoints to prevent group polarization. Diversity supports balanced decisions.

3. Use structured decision-making: Implement decision-making processes that require careful consideration. Structure reduces impulsive risk-taking.

4. Assign individual roles: Give group members specific responsibilities to increase accountability. Individual roles reduce diffusion of responsibility.

5. Consider risks carefully: Explicitly discuss risks and potential negative outcomes. Risk consideration supports balanced decisions.

6. Encourage dissent: Create an environment where disagreement is welcomed. Dissent prevents groupthink and risky decisions.

7. Take time: Avoid rushing group decisions. Time allows for careful consideration and reduces risky shift.

8. Seek external input: Get input from outside the group to avoid group polarization. External input provides perspective.

9. Document decisions: Record who supported decisions to increase accountability. Documentation reduces risky shift.

10. Review outcomes: Regularly review group decision outcomes to learn and improve. Review supports better future decisions.

Learning How to make better decisions? provides comprehensive strategies for decision-making that can help groups make more balanced choices.

How to Understand Others

When understanding group risky decisions:

• Recognize that risky shift is a common group phenomenon. Groups often make riskier decisions than individuals would make alone.

• Understand that diffusion of responsibility reduces accountability. Shared responsibility makes individuals feel less personally accountable.

• Consider that group polarization increases risk. Discussion often moves groups toward more extreme positions.

• Recognize that social pressure influences decisions. Group members may feel pressure to appear bold or confident.

• Understand that reduced accountability increases risk tolerance. Lower individual accountability makes groups more willing to take risks.

• Consider that competitive dynamics drive risk. Competition within or between groups increases risk-taking.

• Recognize that groups may develop unrealistic optimism. Shared optimism can underestimate risks.

• Understand that group dynamics can override individual caution. Group pressure can push individuals toward riskier choices.

• Consider that risky group decisions can have significant consequences. Understanding risky shift helps prevent negative outcomes.

• Support balanced decision-making. Help groups implement strategies to make more balanced decisions rather than just accepting risky choices.

Related Concepts

• Why do people make impulsive decisions?
• How does groupthink work?
• Why do people conform in groups?
• How to make better decisions?
• How does group size affect behavior?