Me and my college mates were thinking of ways to kill time, this Friday evening. And we decided to play a simple game. Each of us would take turns in spotting a member of the opposite sex, and we would rank her purely on her appearance. Then we would compare our scores and see who was the biggest fan and who was the harshest critic. I consolidated the scores and the results are quite interesting.
Rationality of choice and preferences were introduced long back. Adam Smith was of the notion that each individual/entity is driven by his/their own preferences. Each of them take decisions which will maximize their outcome, and collectively the economy of Suppliers and Consumers moves towards an efficient equilibrium. Also famously known as the “Invisible hand”, forms the foundation of microeconomics.
The reason why the above mentioned idea works, is that each of us have our own unique preferences, which may or (quite often) may not be similar to the rest of the group. However, preferences and perceptions can be changed over time by peer influence, societal changes, information, advertisements, etc.
Firms know this. Hence they can group similar consumers together, and based on their willingness to pay, form the demand curves.A homogenous perfect group implies that any individual can effectively represent the entire group.
I have always been been fascinated by the uniqueness in individual perception, and how groups are formed. A lot of key societal decisions and policies are formed on group consensus. What interests me is the variance of the group decision versus the optimal individual decision, and how it influences society, people and the economy.
Now back to to the fun part.
Let me first describe the raters here. It is 4 of us, each in our mid 20s, with a similar educational background (a college degree in engineering) , similar professions (Banking, Technology, Finance) but from 4 competing MNCs. We will call them, LD, PJ, AS and RK. We managed to select 16 subjects to rate. And each individual was subjected to a diligent discussion before the final ratings were given (on a total of 10).
LD, on an average gave a score of 6.1/10 to the subjects, with a high of 8/10 and a lowest of 3.5/10. RK gave an average of of 5.6/10 with his highest being 9/10 to a certain individual and lowest 1.5/10.
Where RK and PJ represent a highly critical group, with a variance of 7+ between their best and the last. LD and AS had a more consistent rating, with a moderately extreme opinions.
Now let us drill down into the scores, in a descending order of their averages.
|Table Highest||Table Lowest||Variance|
So who do you think was the best judge? Do you see a certain bias in scores of some select individuals? Is there inconsistencies in the group v.s. individual preference? Do you think not all of the judges were equally Rational?
As I work more on the analysis. You would notice, there are 2 subjects who are statistical outliers. One benefited a lot from the irrationality of the judges and the other got the harshest result :)