In the simple context of dichotomous choice, the simple majority rule and the expert rule are just two of the possible collective decision-making rules. The main question on which this chapter focuses is the following: What is the optimal collective decision rule from the point of view of individuals who share the same preferences, but differ in their decision-making capabilities? We first identify the optimal decision rule in the general context of uncertain dichotomous choice, then focus on its characteristics in special cases. In particular, we clarify under what circumstances the optimal decision rule is the simple majority rule or the expert rule. The last part of the chapter is devoted to a short discussion of some possible extensions of the model.

As in the model presented in the preceding chapter, we assume that the size of the group is fixed and the decisional skills of the individuals are independent. Nevertheless, the dichotomous decision-making model we present is more general because it allows variability in individual decisional skills, asymmetry in the individual utility in case of making a correct decision in the two possible states of nature, and asymmetry in the priors of the states of nature. The general model and the main results of this chapter are presented in Nitzan and Paroush (1982), (1985).

DICHOTOMOUS DECISION MAKING – THE MODEL

Consider a group of individuals N = {1,…,n} (a team of experts, a committee, a board of managers) that faces a choice between two alternatives, a and b (approve or not an investment project, admit or not a candidate, acquit or convict an accused person).