Committee Processes as Information Aggregation Mechanisms: Process Design

and Experimental Results

Morgan H. Llewellyn

Charles R. Plott

California Institute of Technology

Presented at the Lee Center Workshop May 2006

MARKETS AND PRICES ARE KNOWN TO BE INFORMATION VEHICLES

Information held by insiders CAN get transmitted to outsiders.

CAN COMMITTEE PROCESSES, PROPOSALS AND VOTING BE INFORMATION VEHICLES?

Those who care have the right to vote but the information is held by special interests with no right to vote.

WHAT TYPE OF PROCESS CAN GET THE INFORMATION FROM THE INSIDERS TO THE

OUTSIDERS?

EVENTS

Information Aggregation Mechanisms

As the event unfolds signals and indicators are dispersed to different people. No isolated, individual signal is strong.

PREDICTION ABOUT EVENTS

SOMETHING HAPPENING?

Information in the signals differs from the information in humans. Filtered by human observation, it exists subjectively as vague ideas,

intuition and hunches.

A B C D E F

CCCCC

C

..

....

..

....

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C

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..

C

event drawn it is C

individual signals drawn conditional on event C

signals dispersed to separate individuals

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Alternatives: Points on the Chalkboard

$125

$90

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$20$1

Committees and electionsOptions and incentives

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conflict and incentives

Committees and electionsOptions and incentives

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Rules and Institutions

Equilibrium and cooperative game models (e.g the core) tend to be the best models of the outcome

INFORMATION VARIABLE:

•DECISIONS ARE MADE BY THOSE WHO CARE (COMMITTEE MEMBERS WHO VOTE) BUT DO NOT KNOW THE STATE

•THE STATE IS KNOWN BY THOSE WHO CARE BUT CANNOT VOTE

•INFORMED AGENTS HAVE A DYADIC, EQUILIBIRUM CONFORMING RELATIONSHIP.

Base Parameters (signal is 0,0)

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Base Preferences

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Dyadic

Equilibrium Conforming

Linear Influence Hypothesis

Individuals are informed about the location of their own maximum given the state relative to

the optimum of the insiders (who have information about the state).

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RESULTS

The institutional design was successful: Information Aggregation takes place

The general informational environment is important

We have some understanding of why•The linear Influence Hypothesis works well

• The behaviors of the insiders have expected features

• The initial recommendations of insiders is not the only source of information

The institutional design was successful: Information Aggregation takes place

The general informational environment is important

NO INFORMATION FINAL 060507

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NO INFORMATION 060507 finalY-EQY

-10

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FULL STATE INFORMATION 060507 final-EQ

-10

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Full Information 060507 final and EQ

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final

EQY

Polar Cases: No Information About State

Polar Cases: Full Information About the State

060128 Equilibrium, Final Decisions and Deviation of Decisions from EquilibriumNo State Revelation

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060129 final decision, equilibrium and deviations of final decision from equilibrium No State Revelation

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060114 Outcome and EquilibriaAfter Period State Revelation

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060125 final decision, equilibrium and deviation of final decision from equilibrium

No State Revelation

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Distance from Fully Informed Equilibrium: Feedback

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COMMITTEE NEVER LEARNS THE TRUTH

COMMITTEE LEARNS TRUTH AFTER EVERY DECISION

Distance from Fully Informed Equilibrium: No Feedback

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Information Aggregation Does not Deteriorate Over Time

Euclidean Distance Between Final Decision and Fully Informed Equilibrium by Period: All

Observationsy = -0.06x + 8.68*

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Period

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COMPETITION AND STRATEGIES OF INSIDERS: Shaped by the institutions

•Strategic exaggerations and misrepresentations by insiders can be observed.

•Equilibrium conforming conflicts reduce the advantage of collusion among insiders.

•The insider proposals contain information and it is used. The linear inference model receives support.

SOURCES OF INFORMATION

LINEAR INFLUENCE MODELInsider recommendations are potential sources of information

Feedback

.51,.51

No Feedback

.51, .48

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The distance between insider recommendations is increasing in periods for feedback, but the distance is not statistically significant for

the periods with no feedback

Euclidean Distance Between A&B's Initial Recommendations By Period: Feedback

y = 1.83*x + 12.73*

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Period

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idea

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Initial proposals A and B

Euclidean Distance Between A&B's Initial Recommendations By Period: No Feedback

y = 0.63x + 24.23*

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Period

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idea

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The mechanism contains sources of information in addition to the initial proposals by the insiders

Euclidean Distance Between A&B's Recommendation and Number Amendments in a Period: Feedback All

Periodsy = 0.43x + 21.05*

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Euclidean Distance Between A&B's Recommendation and Amendments in a Period: Feedback Periods 4-14

y = 1.11*x + 18.91*

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Lack of trust in initial recommendations causes people to look for other sources of information such as amendments to proposals.

Euclidean Distance Between A&B's Recommendations by Number of Proposals: No Feedback

y = 0.60x + 25.02*

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Euclidean Distance Between A&B's Recommendation by Number of Proposals: No Feedback Periods 4-13

y = 0.42x + 27.94*

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Accuracy improves with truthfulness of insiders and with

experience

Decision distancei = distance between a&b recs + period + constant

• Conclusions: distance from equilibrium increases with the distance between A & B’s recommendations grow, but the amendment process possesses conveys information which decreases error

Decision Distance Coefficient Standard deviation t-statistc

Distance between

A &B

.24 .07 3.52

Period -.45 .23 -1.98

Constant 3.67 1.58 2.32

feedback environment

Individual voting behavior evolves away from a state of completely uniformed

Ratio of Mistakes to Correct Votes by Amendment Assuming Sincere Voting

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Fully Informed

completely uninformed

SPEICAL COMMITTEE ORGANIZATION FACILITATES INFORMATION AGGREGATION: INFORMATION SEEPS IN EVEN WHEN HELD ONLY BY SELF INTERESTED PARTIES.

DYADIC, EQUILIBRIUM CONFORMING CONFLECTS ARE CENTRAL: CLASSICAL MODELS OF COMMITTEE DECISIONS APPLY

THE SUCCESS OF THE MECHANISM DEPENDS UPON THE BACKGROUND INFORMATION ENVIRONMENT

THE END

ADDITIONAL OBSERVATIONS

New Proposals Are Closer to the Fully Informed Equilibrium than the Previous Proposal

Feedback Environment

Distance between

Proposal and Fully Informed Equilibrium

Coefficient Standard deviation t-statistc

Proposal number in the period

-.46 .14 -3.16

Constant 12.12 .76 15.9

No Feedback Environment

Distance between

Proposal and Fully Informed Equilibrium

Coefficient Standard deviation t-statistc

Proposal number in the period

-.55 .16 -3.37

Constant 14.58 .77 18.92

Total PivotalPivotal to Total Mistakes by Amendment Under No Information Sincere Voting: No Feedback

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Amendment Number

Pivotal to Total Mistakes by Amendment Under No Information Sincere Voting: Feedback

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Amendment Number

Pivotal to Total Mistakes by Amendment Under Perfect Information Sincere Voting: No Feedback

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Amendment Number

Pivotal to Total Mistakes by Amendment Under Perfect Information Sincere Voting: Feedback

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Amendment Number