Committees v Individuals
A horse, not a camel
May 26th 2005
From The Economist print edition
Committees are better at setting interest rates than individuals, it seems. Why?
THE old jokes about the uselessness of committees go unheeded in the world's central banks. Most of them rely on several heads to set interest rates. An experiment* by three economists at the Bank of England*which eight years ago this month took over rate-setting powers from the once omnipotent chancellor of the exchequer, and has enjoyed conspicuous success since*suggests that collective wisdom is exactly that.
...
* Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making, by Clare Lombardelli, James Proudman and James Talbot. International Journal of Central Banking, May 2005
Doctor Thomas:
The decision of a committee will have lower variance than that of a single individual.
Therefore a committee will make better decisions than an individual when lower variance is required (as perhaps is required by interest rate settings - controlling a system with high inertia such as an economy). I conjecture that an individual will make better decisions than a committee when higher variance and more aggressive control is required (eg driving a car?).
The decision of a committee will be less coherent, in general, than that of an individual. This doesn't matter when the decision is constrained to a single variable as it is when setting interest rates, but it may matter for more complex decisions, such as setting corporate or military strategy.
Typical bloody economists and journalists - one point on a curve is a trend, one trend is a scientific fact... (I'm just jealous that the LSE is so widely reknowned and I'm not).
May 26th 2005
From The Economist print edition
Committees are better at setting interest rates than individuals, it seems. Why?
THE old jokes about the uselessness of committees go unheeded in the world's central banks. Most of them rely on several heads to set interest rates. An experiment* by three economists at the Bank of England*which eight years ago this month took over rate-setting powers from the once omnipotent chancellor of the exchequer, and has enjoyed conspicuous success since*suggests that collective wisdom is exactly that.
...
* Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making, by Clare Lombardelli, James Proudman and James Talbot. International Journal of Central Banking, May 2005
Doctor Thomas:
The decision of a committee will have lower variance than that of a single individual.
Therefore a committee will make better decisions than an individual when lower variance is required (as perhaps is required by interest rate settings - controlling a system with high inertia such as an economy). I conjecture that an individual will make better decisions than a committee when higher variance and more aggressive control is required (eg driving a car?).
The decision of a committee will be less coherent, in general, than that of an individual. This doesn't matter when the decision is constrained to a single variable as it is when setting interest rates, but it may matter for more complex decisions, such as setting corporate or military strategy.
Typical bloody economists and journalists - one point on a curve is a trend, one trend is a scientific fact... (I'm just jealous that the LSE is so widely reknowned and I'm not).
posted by Patrick Henry at 10:40 PM
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