Team Decision Making

This chapter analyzes the role of teams in organizations and their potential for increasing productivity and profitability. In economics, the decision-maker is usually modeled as an individual, but most organizational and managerial decisions are taken at a team level, e.g. by committees, boards of directors, and work teams. In the past two decades, behavioral and experimental economics made substantial progress in documenting and understanding basic differences in decisions taken by individuals and teams. The bulk of this literature, in the tradition of social psychology, is based on laboratory studies, where differences in decisions by individuals and teams can be studied in a tightly controlled environment. This chapter reviews the literature on decisions in the context of uncertainty and time preferences, social preferences including bargaining and cooperation, in complex environments that require learning, and in moral dilemmas. In addition, this review discusses the important role of self-selection into teams and its potential consequences. Finally, the survey covers relevant field experiments that complement the literature on decision-making by looking at how team-based incentive schemes influence productivity and output.