Committee Decision Making Implications

Many investment decisions are made in a group setting (e.g., stock recommendations by research committees, analysts working in a team setting, pension plan decisions being approved by a board of trustees, or an investment club deciding which stocks to buy).

Social proof bias is when a person follows the beliefs of a group. Either consciously or subconsciously, individuals may seek the endorsement or favorable judgment of others within the group. 

The remedy is for committees to have the following features:

  • Individuals with diverse backgrounds and cultures.
  • Members who are not afraid to express their opinions even if it differs from others.
  • A committee chair who encourages members to speak out even if the member’s views are contrary to the group’s views.
  • A mutual respect for all members of the group.
  • Collecting individuals’ views before a discussion can ensure a wider range of opinions are considered, particularly if individuals feel inhibited from expressing their views in group discussions.

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