The evolution of collective decision-making from childhood to adulthood: markets, networks and institutions

Adults and children often struggle to achieve optimal outcomes in seemingly simple two-person interactions. This pattern arises from uncorrected tendencies and developmental shortcomings, which are heavily influenced by cognitive biases and limitations. Even more intriguing is the finding that adults perform better in larger and seemingly more complex situations with less guidance. Some evidence suggests that behavior in such environments may rely, at least partly, on skills that are less cognitive and more focused on affective abilities like perceiving and interpreting emotions and intentions. Interestingly, several studies on market trading have shown that children of different ages also tend to reach outcomes with favorable properties. This observation suggests the possibility that the skills supporting behavior in groups may develop early or even be innate. This new research explores the developmental trajectory of decision-making and aggregate outcomes within “small societies” such as markets and networks. It also aims to uncover the cognitive and non-cognitive skills that underpin decision-making in these environments. By unraveling the complexities of decision-making within groups, this research will enhance our understanding of human behavior and shed light on why group situations are, paradoxically, more intuitive to humans than two-person interactions. Additionally, it will help identify the skills that guide our decision-making processes, enabling us to reach favorable outcomes. Furthermore, the research will ascertain the extent to which these skills evolve with age. These findings hold the potential to inform policymaking, education, and societal structures, thereby fostering improved collective outcomes while promoting individual growth and development. The study will employ experimental techniques to test the development of behavior from childhood to adulthood across four paradigms while assessing their cognitive and affective skills. To allow for meaningful comparisons across age groups, a methodology will be developed to ensure participants fully understand the structure of the groups in which they will make decisions. Specifically, the research will investigate four paradigms. Firstly, it will examine trade behavior in markets involving commodities and money, aiming to understand the types of exchanges observed at different ages, as well as trading frictions, clearing prices, and final allocations. Subjects will participate in a trading game, in which they can exchange and purchase goods. The experiment will also measure how communication technologies between players facilitate exchange. Secondly, the study will explore how information is aggregated in large groups, where individuals can only observe the choices made by their immediate "neighbors". The setting will capture the exchange of information in social networks. By varying the information structure, the experiment will explore factors that impact the weight people put to specific kinds of news, and the ability (or lack of) to infer general knowledge from local information. Thirdly, the study will analyze children's behavior in social learning environments, where individuals obtain signals, and they must extract information from the actions (not the signals) of their peers. It will study whether children of different ages make rational inferences. Lastly, the project will investigate how children aggregate the ordinal preferences of their peers and compare their choices with established rules such as majoritarianism, Borda, and antiplurality. For each paradigm, the research will also investigate the relationship between outcomes and skills, aiming to measure the influence of cognitive and affective development on decision-making. Additionally, the study will compare outcomes, skills, and their interplay across populations that differ in environmental factors such as economic status or school curricula. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.