The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures

We present a general framework to study the project selection problem in an organization of fallible decision-makers. We show that when the organizational size and the majority rule for project acceptance are optimized simultaneously, the optimal quality of decision-making, as determined by the decision criterion, is invariant, and depends only on the expertise of decision-makers. This result clarifies that the circumstances under which the decision-making quality varies with the organizational structure are situations where the organizational size or majority rule is restricted from reaching the optimal level. Moreover, in contrast to earlier findings in the literature that the hierarchy and the polyarchy are suboptimal structures, we show that when the size, structure and decision criterion are simultaneously optimized, the hierarchy and the polyarchy are in fact the only possible optimal organizational structures when decision-making costs are present.organizational decision-making, structure, quality, hierarchy, polyarchy

Dynamics of the Federal Funds Target Rate: A Nonstationary Discrete Choice Approach

We apply a discrete choice approach to model the empirical behavior of the Federal Reserve in changing the federal funds target rate, the benchmark of short term market interest rates in the US. Our methods allow the explanatory variables to be nonstationary as well as stationary. This feature is particularly useful in the present application as many economic fundamentals that are monitored by the Fed and are believed to affect decisions to adjust interest rate targets display some nonstationarity over time. The empirical model is determined using the PIC criterion (Phillips and Ploberger, 1996; Phillips, 1996) as a model selection device. The chosen model successfully predicts the majority of the target rate changes during the time period considered (1985-2001) and helps to explain strings of similar intervention decisions by the Fed. Based on the model-implied optimal interest rate, our findings suggest that there a lag in the Fed’s reaction to economic shocks and that the Fed is more conservative in raising interest rates than in lowering rates

Optimal Sequential Decision Architectures and the Robustness of Hierarchies and Polyarchies

Published in Social Choice and Welfare, 2005, 24 (3), 397-411. https://doi.org/10.1007/s00355-003-0304-0</p

The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures

Published in Social Choice and Welfare, 2005, 25 (1), pp. 207-220. https://doi.org/10.1007/s00355-005-0055-1</p

Epistemic democracy with correlated voters

We develop a general theory of epistemic democracy in large societies, which subsumes the classical Condorcet Jury Theorem, the Wisdom of Crowds, and other similar results. We show that a suitably chosen voting rule will converge to the correct answer in the large-population limit, even if there is significant correlation amongst voters, as long as the average covariance between voters becomes small as the population becomes large. Finally, we show that these hypotheses are consistent with models where voters are correlated via a social network, or through the DeGroot model of deliberation

Epistemic democracy with correlated voters

We develop a general theory of epistemic democracy in large societies, which subsumes the classical Condorcet Jury Theorem, the Wisdom of Crowds, and other similar results. We show that a suitably chosen voting rule will converge to the correct answer in the large-population limit, even if there is significant correlation amongst voters, as long as the average covariance between voters becomes small as the population becomes large. Finally, we show that these hypotheses are consistent with models where voters are correlated via a social network, or through the DeGroot model of deliberation

Epistemic democracy with correlated voters

We develop a general theory of epistemic democracy in large societies, which subsumes the classical Condorcet Jury Theorem, the Wisdom of Crowds, and other similar results. We show that a suitably chosen voting rule will converge to the correct answer in the large-population limit, even if there is significant correlation amongst voters, as long as the average correlation between voters becomes small as the population becomes large. Finally, we show that these hypotheses are consistent with models where voters are correlated via a social network, or through the DeGroot model of deliberation