When Professor Alan Blinder returned to teaching after serving as vice-chairman of the Federal Reserve from 1994 to 1996, he was convinced that committees were not effective for making decisions about monetary policy. With another researcher, Blinder developed an experiment to determine whether individuals or groups make better decisions.
The experiment Blinder and his colleague developed was designed to explore how quickly individuals and groups could distinguish between changes in underlying trends and random events. For example, if unemployment were to rise in one month, it could be a temporary aberration or it could be the beginning of a recession. Changing monetary policy would be a mistake if the rises were temporary, but waiting too long to change policy would be costly if the change were permanent. Who is better at making these sorts of determinations?
The results of the experiment showed that committees make decisions as quickly as, and more accurately than, individuals making decisions by themselves. Moreover, it was not the performance of the individual committee members that contributed to the superiority of committee decisions the actual process of having meetings and discussions appears to have improved the group s overall performance. In later research, Blinder also found that it did not really matter whether the committee had a strong leader. His findings suggest it is the wisdom of the group, not its leader that really matters. Also, to the extent the leader has too much power and the committee functions more like an individual than a group monetary policy will actually be worse!