Alan S. Blinder

Alan S. Blinder is an economist whose experience as vice chairman of the Federal Reserve Board made him skeptical of decision-making by committee. In collaboration with John Morgan, he tested whether small groups could make intelligent decisions efficiently. Their experiments suggested that, given a meaningful way to combine members’ judgments, a group could act faster and more accurately than individuals—including its strongest individual performer.

Background and Research Question

In the mid-1990s, Blinder served as vice chairman of the Federal Reserve Board. Interest-rate changes were set by the Federal Open Market Committee, a twelve-member body comprising the seven members of the Federal Reserve Board and five presidents of regional Federal Reserve banks. His experience in that setting left him doubtful about committees, and with economist John Morgan he designed a study to examine two familiar concerns: whether groups could make intelligent decisions and whether they could make them quickly, rather than succumbing to the presumed inefficiency of discussion.

Experiments in Group Judgment

The 2000 study comprised two experiments modeled, in simplified form, on the challenges confronting the Federal Reserve. In the first, students drew balls from urns that began with equal numbers of blue and red balls. After the first ten draws, the proportion shifted so that one color accounted for 70 percent and the other for 30 percent. The students had to detect as soon as possible which color had become more prevalent, a task likened to recognizing a change in economic conditions and deciding whether monetary policy needed to shift. Because delay mattered, students were penalized for every draw made after the changeover.

Participants first played alone, then in groups with free discussion, then alone again, and finally in groups once more. This sequence controlled for learning over repeated attempts. The group judgments were faster and more accurate: groups identified the direction correctly 89 percent of the time, compared with 84 percent for individuals, and outperformed even the best individual.

The second experiment more directly asked students to play central bankers, setting interest rates in response to changes in inflation and unemployment. They had to detect whether economic activity was slowing or gathering pace and move rates in the appropriate direction. Once again, groups made better decisions than individuals, who moved rates the wrong way far more often. The groups reached their decisions just as quickly as individuals did, countering the assumption that collective deliberation necessarily costs time.

What the Findings Showed

The most striking result was that a group’s performance did not correlate with the performance of its smartest member. The group was not simply borrowing the judgment of its most capable participant; it could outperform the people within it, including its strongest individual. A Bank of England study modeled on Blinder and Morgan’s experiment reached the same conclusions: groups could decide intelligently and quickly, and do better than their smartest members.

The book uses these results to distinguish aggregation from centralization. Blinder and Morgan’s findings support the value of deliberation when members’ judgments contribute to a real group decision; appointing a team only to offer advice, while leaving the decision elsewhere, forfeits the team’s central advantage. The studies therefore offer a practical answer to the fear that small groups are inherently unreliable: their value depends not merely on assembling people, but on allowing the group to combine what its members know and decide together.