Simon Business School

What is the Cost of Compromise?

Heikki Rantakari Research

Heikki Rantakari and Alessandro Bonatti 

When it comes to group decision making, which kind of structure works best? Simon professor Heikki Rantakari, with Alessandro Bonatti of Sloan School of Management at Massachusetts Institute of Technology, explores the effects of consensus decision making on group performance in “The Politics of Compromise.” The paper was published in American Economic Review.

Consider this: A university establishes a committee to revise the curriculum. Members then invest time and effort developing often-conflicting proposals, strategically deciding among themselves the type of proposals to work on and which proposals will receive support.

Here’s the problem at the heart of it, Rantakari says: Because the time and effort for the group to develop solutions is costly, the first person to present a concrete proposal gains bargaining power. The rest of the group can avoid further costs by approving his proposal. This can be problematic if proposals that are highly skewed toward one member are much less valuable than solutions that balance the interests of the group as a whole.

The need to build a consensus around a proposal can induce such compromise. Intuitively, the members will not support a proposal unless each of them perceives it to be sufficiently valuable to himself, and nobody should waste time developing proposals that they know will get rejected. But there is also a downside. The more a member needs to compromise on the content to guarantee support, the less interested he is in developing the proposal in the first place. This leads to inefficient effort and delay.

“The main tradeoff that we are considering is this idea that while compromise can be good for the overall value of the final product, by compromising, no single member feels strong ownership of the idea. There is a lack of incentive to see the idea through to completion. The goal is then to determine deliberation rules that balance these two effects,” Rantakari says.

“The same logic carries over to the group composition itself. If everybody agreed, everybody would want somebody else to do the work. So it’s looking at this idea where it is good to have a lot of disagreement in the group, and then how to use the deliberation rules to harness that conflict to create both effort and compromise.”

Overall, the organizational decision-making process should balance the quality of the proposals created with the time and effort it takes to develop and consider them.

The Politics of Compromise
Available at SSRN.com Abstract ID =2444853

 
   Back

Search

Back   

Events

   Back

Search

Back