Democracy in the Firm

2021 ◽  
pp. 38-59
Author(s):  
Hervé Crès ◽  
Mich Tvede
Keyword(s):  
Decision Making ◽  
Political Stability ◽  
Collective Decision ◽  
Majority Voting ◽  
Optimal Rate ◽  
Collective Decision Making ◽  
Market Failures ◽  
Democratic Principle ◽  
The Social ◽  
Decision Making Problem

The problem of collective decision-making arising from market failures is addressed using the democratic principle applied within the assembly of shareholders. A basic requirement is imposed (the Pareto principle): collective choices should not be at odds with the interests of all shareholders, as expressed by their preferences. This requirement puts bounds on what the collective can choose: it should remain within the set of averages of what the shareholders want. Further refining these bounds, a notion of political stability is proposed; it is defined with respect to (super) majority voting. One searches for the smallest rate of super majority for which a stable collective choice exists. This optimal rate is reviewed under classical assumptions from the social choice literature. It is shown how the dimensionality of the collective decision-making problem and the polarization of the electorate critically impact political stability, and hence the optimal rate of super majority.

Introduction

2021 ◽  
pp. 1-10
Author(s):  
Hervé Crès ◽  
Mich Tvede
Keyword(s):  
Decision Making ◽  
Market Mechanism ◽  
Collective Decision ◽  
The Political ◽  
Collective Decision Making ◽  
Market Failures ◽  
Publicly Traded ◽  
Majority Principle ◽  
The Social ◽  
Decentralized Market

The central puzzle of the book is introduced: Why is there so much consensus among shareholders of large firms? Although trading on the market forges agreement between shareholders about the firms’ objectives, residual yet substantial disagreement should persist because of market failures. To resolve the puzzle, a vision of the political economy of the (publicly traded) firm is outlined, showing 1) how the upstream operation of a decentralized market mechanism makes collective decision-making in the firm easier and more stable; and 2) why the democratic (majority) principle is likely to promote economic efficiency as a politically stable choice. Yet more is needed: a vision of the social economics of shareholders showing how collective decision-making shapes individual preferences in a way that promotes the alignment of shareholders. These two visions are laid out in the two parts of the book.

scholarly journals Quorums enable optimal pooling of independent judgements

2018 ◽  
Author(s):  
James Marshall ◽  
Ralf H.J.M. Kurvers ◽  
Jens Krause ◽  
Max Wolf
Keyword(s):  
Decision Making ◽  
Signal Detection ◽  
Signal Detection Theory ◽  
Detection Theory ◽  
Collective Decision ◽  
Majority Voting ◽  
Single Shot ◽  
Collective Decision Making ◽  
Trade Offs ◽  
Speed Accuracy

Majority-voting and the Condorcet Jury Theorem pervade thinking about collective decision-making. Thus, it is typically assumed that majority-voting is the best possible decision mechanism, and that scenarios exist where individually-weak decision-makers should not pool information. Condorcet and its applications implicitly assume that only one kind of error can be made, yet signal detection theory shows two kinds of errors exist, ‘false positives’ and ‘false negatives’. We apply signal detection theory to collective decision-making to show that majority voting is frequently sub-optimal, and can be optimally replaced by quorum decision-making. While quorums have been proposed to resolve within-group conflicts, or manage speed-accuracy trade-offs, our analysis applies to groups with aligned interests undertaking single-shot decisions. Our results help explain the ubiquity of quorum decision-making in nature, relate the use of sub- and super-majority quorums to decision ecology, and may inform the design of artificial decision-making systems.Impact StatementTheory typically assumes that majority voting is optimal; this is incorrect – majority voting is typically sub-optimal, and should be replaced by sub-majority or super-majority quorum voting. This helps explain the prevalence of quorum-sensing in even the simplest collective systems, such as bacterial communities.

Why So Much Consensus?

2021 ◽  
pp. 95-115
Author(s):  
Hervé Crès ◽  
Mich Tvede
Keyword(s):  
Decision Making ◽  
Market Failure ◽  
Holistic Approach ◽  
Individual Characteristics ◽  
Collective Decision ◽  
Collective Decision Making ◽  
Pareto Principle ◽  
Market Failures ◽  
Full Agreement ◽  
Clear Cut

An even more holistic approach to the problem is adopted by looking at how collective decision-making impacts the choices and characteristics of individual agents, e.g. their shareholdings, their beliefs about economic prospects, or even their preferences. The thesis is that individual characteristics shape collective choices and are at the same time shaped by them, forming a duality between persons and groups. The analysis is deployed on the network of affiliation of investors to firms. Indeed, suppose the Pareto principle holds at both the collective and individual levels, then a full agreement between all agents occurs within a cluster of investors and firms, despite potentially severe market failures—the ‘single thought’ theorem. Efficiency results from the endogeneity of individual characteristics, yet the theorem is strikingly strong and clear-cut. An analysis of what it takes for the Pareto principle to hold is proposed in each of the three contexts of market failure.

Reconsidering the Role of Political Argument in Democratic Politics

2011 ◽  
Author(s):  
Jack Knight ◽  
James Johnson
Keyword(s):  
Decision Making ◽  
Social Choice ◽  
Causal Effect ◽  
Collective Decision ◽  
Collective Decision Making ◽  
Strategic Manipulation ◽  
The Social ◽  
Analytical Argument

This chapter examines three ways that political argument can affect democratic decision making and, thus, significantly mitigate the force of the social choice challenge. By engaging in political argument, relevant agents can settle the dimensions that, in any instance, structure their disagreements. This causal effect not only dampens the prospects that collective decision making will generate cyclical outcomes, it thereby reduces the opportunities for strategic manipulation that such instability presents. Once the analytical argument has established the possibility that voting, augmented by argument, could produce normatively legitimate decisions, the chapter considers two ways in which democratic argument can enhance the quality of such decisions: diversity and reflexivity.

scholarly journals Quorums enable optimal pooling of independent judgements in biological systems

eLife ◽  
2019 ◽  
Vol 8 ◽  
Author(s):  
James AR Marshall ◽  
Ralf HJM Kurvers ◽  
Jens Krause ◽  
Max Wolf
Keyword(s):  
Decision Making ◽  
Signal Detection ◽  
Signal Detection Theory ◽  
Detection Theory ◽  
Collective Decision ◽  
Majority Voting ◽  
Editorial Note ◽  
Single Shot ◽  
Collective Decision Making ◽  
Speed Accuracy

Collective decision-making is ubiquitous, and majority-voting and the Condorcet Jury Theorem pervade thinking about collective decision-making. Thus, it is typically assumed that majority-voting is the best possible decision mechanism, and that scenarios exist where individually-weak decision-makers should not pool information. Condorcet and its applications implicitly assume that only one kind of error can be made, yet signal detection theory shows two kinds of errors exist, ‘false positives’ and ‘false negatives’. We apply signal detection theory to collective decision-making to show that majority voting is frequently sub-optimal, and can be optimally replaced by quorum decision-making. While quorums have been proposed to resolve within-group conflicts, or manage speed-accuracy trade-offs, our analysis applies to groups with aligned interests undertaking single-shot decisions. Our results help explain the ubiquity of quorum decision-making in nature, relate the use of sub- and super-majority quorums to decision ecology, and may inform the design of artificial decision-making systems.Editorial note: This article has been through an editorial process in which the authors decide how to respond to the issues raised during peer review. The Reviewing Editor's assessment is that all the issues have been addressed (<xref ref-type="decision-letter" rid="SA1">see decision letter</xref>).

Voting and Trading in Symbiosis

2021 ◽  
pp. 60-88
Author(s):  
Hervé Crès ◽  
Mich Tvede
Keyword(s):  
Decision Making ◽  
Financial Market ◽  
Imperfect Competition ◽  
Political Stability ◽  
Equilibrium Analysis ◽  
Market Failures ◽  
Decision Making Problem ◽  
Incomplete Financial Market ◽  
Voting Mechanisms

The notion of political stability of Chapter 2 is applied to the general equilibrium analysis of Chapter 1, highlighting how trading and voting mechanisms help each other’s functioning. On an incomplete financial market, trading reduces the dimensionality of the collective decision-making problem; in the presence of externalities or imperfect competition, trading reduces the polarization of the electorate. In both cases, political stability obtains for lowered rates of super majority. Hence trading facilitates the emergence of a voting-stable decision. It is furthermore argued that stability with respect to the lowest possible rate of super majority is more likely to result in economic efficiency. Hence voting mitigates market failures. However, it takes different governance rules to ensure efficiency of stable decisions: shareholder governance on an incomplete financial market, stakeholder democracy when facing externalities or imperfect competition. And expectations about the outcome of the decision-making process can play a crucial, potentially destabilizing role.

Islands of Stability: Engaging Emergence from Cellular Automata to the Occupy Movement

2014 ◽  
Vol 5 (1) ◽  
Author(s):  
Andrew Pickering
Keyword(s):  
Decision Making ◽  
Cellular Automata ◽  
Black Box ◽  
Collective Decision ◽  
Collective Decision Making ◽  
Occupy Movement ◽  
History Of ◽  
The 1960S

"Instead of considering »being with« in terms of non-problematic, machine-like places, where reliable entities assemble in stable relationships, STS conjures up a world where the achievement of chancy stabilisations and synchronisations is local.We have to analyse how and where a certain regularity and predictability in the intersection of scientists and their instruments, say, or of human individuals and groups, is produced.The paper reviews models of emergence drawn from the history of cybernetics—the canonical »black box,« homeostats, and cellular automata—to enrich our imagination of the stabilisation process, and discusses the concept of »variety« as a way of clarifying its difficulty, with the antiuniversities of the 1960s and the Occupy movement as examples. Failures of »being with« are expectable. In conclusion, the paper reviews approaches to collective decision-making that reduce variety without imposing a neoliberal hierarchy. "

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