1. 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

2. 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?

3. 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.

4. A B C D E F CCCCC C.. C C event drawn it is C individual signals drawn conditional on event C signals dispersed to separate individuals

5. 10 20 30 40 50 6070 30 20 10 50 40 Alternatives: Points on the Chalkboard $125 $90 $75 $20 $1 Committees and elections Options and incentives

6. 180 20 140 160 80 100 120 140 40 60 80 120 20 40 conflict and incentives Committees and elections Options and incentives

7. 180 20 140 160 80 100 120 140 40 60 80 120 20 40 Rules and Institutions Equilibrium and cooperative game models (e.g the core) tend to be the best models of the outcome

8. 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.

9. 1 2 4 5 3

10. Dyadic Equilibrium Conforming Linear Influence Hypothesis

12. 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

13. The institutional design was successful: Information Aggregation takes place The general informational environment is important

14. Polar Cases: No Information About State Polar Cases: Full Information About the State

16. COMMITTEE NEVER LEARNS THE TRUTH COMMITTEE LEARNS TRUTH AFTER EVERY DECISION

17. Information Aggregation Does not Deteriorate Over Time

18. 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.

19. SOURCES OF INFORMATION LINEAR INFLUENCE MODEL Insider recommendations are potential sources of information Feedback.51,.51 No Feedback.51,.48

20. The distance between insider recommendations is increasing in periods for feedback, but the distance is not statistically significant for the periods with no feedback Initial proposals A and B

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

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

23. Accuracy improves with truthfulness of insiders and with experience Decision distance i = 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 DistanceCoefficientStandard deviationt-statistc Distance between A &B.24.073.52 Period-.45.23-1.98 Constant3.671.582.32 feedback environment

24. Individual voting behavior evolves away from a state of completely uniformed

25. 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

26. THE END

27. ADDITIONAL OBSERVATIONS

28. New Proposals Are Closer to the Fully Informed Equilibrium than the Previous Proposal Feedback Environment Distance between Proposal and Fully Informed Equilibrium CoefficientStandard deviationt-statistc Proposal number in the period -.46.14-3.16 Constant12.12.7615.9 No Feedback Environment Distance between Proposal and Fully Informed Equilibrium CoefficientStandard deviationt-statistc Proposal number in the period -.55.16-3.37 Constant14.58.7718.92

29. Total Pivotal