FOUNDATIONS OF GROUP BEHAVIOR

Foundations of Group Behavior Zach Smith Geoff Hewitt Boise State University

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Table of Contents
Executive Summary ..................................................................................................................... iii Introduction ....................................................................................................................................4 Maggies Decision...........................................................................................................................5 Ideal Investment Choice ................................................................................................................7 Popular Investment Choice ...........................................................................................................8 Influences of Groupshift and Groupthink ...................................................................................8 Group Decision vs. Individual Decision .......................................................................................9 Importance of Groups to Managers ...........................................................................................10 Recommendation and Conclusion ..............................................................................................11 References .....................................................................................................................................13 Tables and Figures Figure 1 ...........................................................................................................................................6 Figure 2 ......................................................................................................................................... 10

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The purpose of this document is to explore the foundations of group behavior and apply the concepts to a scenario in which group decision making is utilized. A case study is evaluated that demonstrates how decisions made in a group setting can differ from conclusions reached by an individual. In the hypothetical case study, an individual discusses a financial investment opportunity with their family, and makes a decision based on what the group collectively suggests. The topic of groups is used to further analyze the case while the following subjects are addressed: Individual seeks familys advice Ideal investment choice The popular investment choice The familys choice Benefits of groups for leadership Comparing individual and group decisions

Using information on group behavior, these points along with the questions posed by the case study are addressed. Making use of research and material on groups, it was determined that the individual made the proper decision to consult their family before making a financial decision as an individual. Based upon the information provided in the case, it was also concluded that the optimal investment decision for the individual was a low risk municipal bond fund. After considering how people behave as individuals as opposed to in groups, it was determined that the popular investment choice for an individual making the decision would be a low risk choice, while a group would gravitate towards the high risk choice. Although group behavior would differ from the individual in this type of situation outlined in the case, it was concluded that the family would recommend a lower risk investment than the average less cohesive group. In conclusion, the case provided insight on the how groups can be beneficial for leadership within the workplace. While decisions made as an individual can differ significantly from those made as a group, it is important to understand how each can be beneficial to different situations. Understanding the concepts explored while analyzing the case study will ultimately lead to increased productivity and success in the workplace.

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When examining the concept of a group, it is first best to understand the very definition of a group. A group is defined as two or more individuals, interacting and interdependent, who have come together to achieve particular objectives. Groups are found everywhere in average day to day life. Whether one is at school, the workplace or in their own home chances are they are involved and interacting in a group at some point during the day. By understanding group behavior and basic group concepts, one can learn how to create more effective and productive teams which will ultimately contribute to success at home or in the workplace. One particular case study that exhibits the use of a group is one in which an individual consults their family to make an important financial decision. In this case study, Maggie Becker, a 24 year old marketing director, inherits $100,000 from her uncle. She considers her current income sufficient to satisfy her living expenses and therefore decides to invest the money so that she will have a safe pool to draw from in the future. After asking a financial advisor for investment options, she was provided with two choices. One is a very low risk AAA municipal bond fund that allows for Maggie to gain $7000 in 5 years while standing a zero chance of losing money. The second option is a moderate-risk mutual fund that has a 50 percent chance of making $40,000 but 50 percent chance of losing $20,000. Although Maggie prides herself on being a rational and objective thinker, she is unsure of what decision to make in this case, and is unable to get further help from her advisor who refuses to offer additional guidance. Finally, Maggie decides to get her family together, lay out the two options, and go with their decision. She recalls the saying two heads are better than one, and concludes that four heads should be even better. In order to make the best possible decision, Maggie has decided to collude with family members to gain additional input. While further evaluating this case study, a series of questions must be addressed: 1. Has Maggie made a good decision about the way she is going to make the decision? 2. Which investment would you choose? Why? 3. Which investment do you think most people would choose? 4. Based on what you have learned about groupshift, which investment do you think Maggies family will choose? 5. In general, is an individuals decision better than a groups? Why or why not? 6. As managers, why is understanding group behavior beneficial to being a leader?

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Maggie seeks her familys advice In the case study Maggie made the decision to consult her family on her investment options. She decided to form a small group of people she knows and can trust, then relied on their input to come to her final decision. To determine if this was a wise tactic, her other possible options for making a decision must first be considered. To begin, Maggie could either make her investment decision as in individual or incorporate outsiders and form a group to make the decision. The correct route to take depends on a number of factors, and can be understood by looking at the strengths and weaknesses of group decision making. Benefits of Group Decision Making By forming a group Maggie would benefit from more complete information and knowledge, an increased diversity of views, and an increased acceptance of a solution (J u d g e & R o b b i n s , 2 0 1 1 ). By colluding with her family Maggie has access to much more knowledge and experience. Perhaps a family member has taken part in a similar investment opportunity or has had some dealings in the past with similar finances. She might find that her Mother or Father has had dealings with municipal bonds or mutual funds and can shed light on the workings of each investment method. With an increased diversity of views, Maggie might find that a family member will suggest something that never crossed her mind. For instance, someone in the group might suggest that she not invest her money altogether, or invest elsewhere, such as in real estate. Regardless of what conclusion the family reaches in the end, one thing that is certain is that Maggie is likely to experience more ease at accepting a solution. Maggies family is likely to have a preference on which investment option Maggie should choose and they will enthusiastically support their choice and encourage her to accept it. With this encouragement Maggie is likely to feel more comfortable making a decision even though her family might not know the first thing about investing. This can be considered a benefit as many decisions fail because people are unable to accept a solution. Weaknesses of group decision making While group decision making has a positive side, there are also many weaknesses of groups that Maggie should consider before deciding to accept her familys conclusion. One drawback that she should take note of is conformity pressures. The pressure to conform can sometimes prevent logical and necessary disagreements. Perhaps Maggies brother, for instance, has a reasonable disagreement against one investment option but feels pressure to agree with the rest of the family. His opinion might be very enlightening but was smothered by the pressure to conform to the family decision. Another possible obstacle in group decision making is the risk of domination by a few members. This can be a major downside to group decision making because if the individual dominating the discussion is a low ability member, then the groups overall success and effectiveness will be compromised. To relate this concept to the case study, if Maggies father was dominating the family discussion, his suggestion might be accepted even though he might know the least about Maggies investment predicament. Maggie would end up

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investing her inheritance based on his choice even though it might not be the wisest decision for her. In addition to conformity pressures and group dominators, another weakness of group decision making and perhaps the most relevant to this particular case is the risk of ambiguous responsibility. When making decisions as groups, the responsibility for the end outcome is spread over the members of the group. Accountability in groups is vague and diluted. This is important for Maggie to understand because ambiguous responsibility generally leads to more risky decisions made in groups. For instance, her family really does not have much stake in the outcome of this decision because whether she loses money or gains money, only Maggie will be affected. This might lead to her family pushing her to make a more risky investment, because to them the possibility of gaining $40,000 seems attractive, but they might not empathize with the possibility of losing $20,000. If it is not their money to begin with, the family members clearly would not be as concerned with the risk of loss. After considering the benefits and drawbacks of group decision making, Maggies choice to use a group can be evaluated. In this particular case, Maggie had limited knowledge on municipal bonds and mutual funds, therefore it was wise for her to seek advice from others. By consulting her family, she can avoid many of the disadvantaged previously outlined assuming that family is generally more trusting than friends, colleagues, or strangers. Making a decision as an individual is known to be much more time efficient, but is irrelevant as the case study does not mention a time constraint. In addition, Maggies family is likely to demonstrate ideal group norms, and since they are family, their group is also very cohesive. As indicated by figure 1, high performance norms and high cohesiveness tend to lead to high productivity within a group (Judge & Robbins, 2011). Figure 1: Group Productivity

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This means that ultimately Maggies family will be a highly productive group, and she will benefit from this quality. Although Maggie could have made a decision to ask a group of educated finance professionals, she made the best use of the resources in her possession. The Ideal Investment Choice Before determining which investment option is ideal for Maggie in the case study, it is important to understand the difference between her two choices, a municipal bond fund and a mutual fund. Both of the options have advantages and disadvantages that need to be considered before locking into an investment. Municipal Bond Fund The first investment option features a low-risk AAA municipal bond fund. According to the case study, after 5 years there is zero chance of losing money and there will be an expected gain of $7000. Municipal bond funds are mutual funds that hold the tax-free investments known as municipal bonds (C o n l e y , 2 0 1 1 ). Although municipal bond funds such as the one presented to Maggie have lower yields, there are also advantages that accompany them. Municipal bonds are free of taxes and more predictable lower risk investments and have few fees. By choosing to invest in a municipal fund Maggie can expect a predictable result in the future. Mutual Fund The second investment option presents a moderate-risk mutual fund. The case study reveals that this option has a 50 percent chance to yield $40,000 but also a 50 percent chance to lose $20,000. A mutual fund is a professionally managed investment strategy in which money is pooled from many investors to buy stocks, bonds, or securities (M c G o w a n 2 0 1 1 ). Clearly, the main advantage the mutual fund option offers Maggie is the possibility to yield a much higher gain than the municipal bond fund. This would be of great use for Maggie who wishes to have a nest egg to draw from in the future. Before getting excited about the potential gain of mutual funds, the disadvantages of this type of investment should be understood. Unlike municipal bond funds, mutual funds are taxed. This is important to note as the yield received may be exaggerated before taxes are factored in. In addition, mutual funds also have hidden fees and lack liquidity (M c G o w a n 2 0 1 1 ). It is difficult to investigate the risk Maggie has in choosing a mutual fund because the case study does not provide the details necessary to analyze mutual fund risk. However, given that there is a 50 percent chance of losing a significant amount of Maggies inheritance, the focus should be on that figure and that risk should be considered the primary disadvantage. After weighing the advantages and disadvantages of the two investment plans presented in the case study, it is clear that the most suitable decision for Maggies situation is to invest in the low risk AAA municipal bond fund. Although it might be natural for one to gravitate towards

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the mutual fund which offers a chance to gain an attractive sum of money, in the long run the advantages of the bond fund are much more appropriate for someone such as Maggie. The primary reason Maggie should focus on a bond fund is that there is too high of a cost and risk associated with mutual funds. The case study indicated that Maggie currently earns a salary that meets her needs, therefore the opportunity to make $40,000 through a mutual fund is beneficial, but not vital or necessary. The inheritance that she is receiving is money that she otherwise would not have, therefore it is best to minimize risk. The Popular Investment Choice Determining the investment choice that most people would choose would most likely depend on whether they make the decision as part of a group or as an individual. If the decision was being made by individuals alone, then the most popular decision would be the low risk municipal bond. The reasoning behind this is that based on the behavior of individuals versus groups, an individual making this decision is likely to minimize risk. The individual will make a more rational and effective decision, which is likely to be substantiated by their research prior to reaching a conclusion. An individual will recognize themselves as the sole person accountable for any loss they may incur from making the decision. When one contemplates the two investment choices, they will most likely feel uncomfortable with the mutual fund option where they will be accountable for the possibility of losing a large amount of money. On the other hand, if this decision is made in a group (except for a cohesive group such as Maggies family in the case study) then the popular investment choice will be the more risky mutual fund. This is explained by the fact that there is ambiguous responsibility evident in groups, and a tendency to lean towards more risky solutions. Because the responsibility cannot easily be traced back to one individual in the group, members of the group are far more likely to be risky. Influences of Groupshift and Groupthink There are two separate ways a group decision can be influenced by groups. These things cause the groups choice to be directed a different way than may happen if the choice were made on an individual matter. First, groupthink prevents alternative options from being voiced because there is an expectation that participants agree rather than finding options. Being in a situation where ones authority is in question brings about this groupthink, where speaking out of turn is frowned upon. There are a few other good examples of groupthink. A common one is rationalizing resistance to the currently accepted option. It is easier to show faults of an unproved and unknown option. Next, pressure may be applied to those in opposition. Those trying to avoid deviation from the norm may also be less willing to suggest alternatives, and thus changing their position to match the popular one. Finally, it may be considered that no answer is invariable

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agreement. Combined with the notion that dissenters may be quiet and thinking that no answer is agreement may lead a group to falsely believe they are all in agreement. The other way a group could be swayed is through groupshift. Groupshift occurs by as one or more of the members of the group have a position more exaggerated opinion than they normally would. For instance, with the case study, some of Maggies family might normally be frugal, but would suggest she go for the riskier option as a result of groupshift. This effect can also go the other way: if normally, one of the members in the family is more willing to take risks but feels Maggie shouldnt do that in this instance would be another example. It may be more common, among a family setting, for risky choices to be over exaggerated, which is probably how their choice may be swayed. Group Decision vs. Individual Decision There are pros and cons for each side, meaning some situations may call for an individual, and some for a group decision. For example, an individual may be faster at coming up with and applying a method, but groups may be more effective at exploring various options and deciding on the most productive one. Other characteristics of groups are that they gain more complete information, can offer more diverse views, and decide on possibly the best option. On the downside, groups may succumb to conformity pressure, can be dominated by a few members, and there can be ambiguous responsibility. As far as individuals go, they may be quicker at implementing a decision, it may be easier to stay on task, and an individual is more accountable. On the downside, individuals may be less creative than groups and they may choose a sub-par option. When deciding whether or not to use a group for a certain decision, there are a few components that can be considered. In order for a group to be effective, there needs to be a degree of diversity. Having a diversity of skills or experiences can lead to more valuable exploration of all the options. Next, open discussion is critical to a successful group. If someone fears that their opinion will be rejected without even explored, the group is hindered. Finally, the task to be accomplished must be complex. If not, the group will most likely be driven and stay off task. Another aspect that should be considered between groups or individuals is group formation. Individuals do not need to go through the same process to begin work. Groups need to form, [brain]storm, norm, perform, and adjourn. Only when these steps are done properly is a group as strong as it can be. Forming the group is usually a straight-forward process, where the only ambiguous part is the assigning of responsibility. This either happens right then or be postponed to a later point in the group-work. Next is storm, where the group may become more organized and the project is placed more into stone. Tasks are discussed and devised, attempting to find the best option. Once that is done, norming commences. Norming allows the group to become more cohesive and continue to strengthen togetherness and cooperation. From there, the

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group can really perform. If it is then found that all tasks that this group was formed for are complete, the group adjourns, finishing up any last tasks. Figure 2 illustrates this function of groups: Figure 2: Group Formation

Figure 2: Group Formation. (Judge and Robbins, 2011.) Applying this discussion to the case study, it may be a difficult choice whether or not to invite Maggies family into this matter. One reason she should not have chosen to involve her family is the point about groups needing to be diverse. Her family may be too close of a group to truly give valuable information that would lead to the best solution. But, as long as their discussion is open and all are willing to hear everyone elses opinion, they should be okay. Essentially, examining various aspects of the decision and the group itself will lead to whether or not to use a group. For Maggie, the only reason to include the family would be to reinforce a decision she has already made she should not have them make the decision for her. Importance of Groups to Managers Groups are critical tools in the workplace, and a manager that knows how best to use them will have an edge. In an interview, a simple example of successful application of great group work can show competence as a manager. Understanding groups and their benefits is useful for a manager for two main reasons. Effective group management enables managers to gain productivity from their employees. Tasks that done alone may take a long time can be sped up, especially if that task is monotonous, and multiple people work on it to speed it up. Groups also give a manager an edge

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when they are trying to find a new method or idea for something; groups can give team-members an environment where they can be comfortable suggesting new options. Important to groups are the notions of groupshift and groupthink. What use is a group if the decisions are skewed by effects like groupshift and groupthink. Trying to rule out these effects will ensure a strong group. A smart manager will be able to sense when a group is being affected by one of these phenomenons and will try to correct it. Knowledge of these different aspects of group behavior will best give an edge to any manager looking to effectively use groups. A manager that best understands these different aspects of group behavior will be able to command a group exactly the way they wish. They will get the results they seek without expending more time and money than otherwise may be needed. For that main reason is it important for a successful manager to understand and use groups effectively. Recommendation Groups are an integral part of the business place. There are plenty of reasons for their use. They can be difficult to manage, and ineffective use of them may cause more of a hindrance than a help. They allow for decisions to be made in a timely matter. Also, the decisions chosen may be a better one than one picked by an individual only. They allow for various people to look at the same problem, allowing for a big picture mentality to reign. Applying this discussion to the case study can bring the best option for Maggie to light. The first question explored whether or not Maggie should have taken this choice to her family for help. Because of the financial risk, it is smart that she wanted to have further input for this manner. The only potential drawback could be her familys desire to look out for her and push her to be more conservative. All things considered, working with her family gave her more security in her choice. Next, how this choice may have been made on a personal level was discussed. It is always exciting to explore options involving the possibility of such a big return. But, especially given todays economy, a sure return on investment is the wiser choice to make. Also, it was talked about what most people would choose if in that position. In most instances, the general population would also gravitate towards the more conservative choice. The only real exception to that may be if that choice was made in a group, where the money has no real tie to any one person and they all want the big return. Knowing that groupshift impairs groups, the question was posed how Maggies family may have been swayed through groupshift. As groupshift exaggerates positions normally held, it could have either made the family more risky, or more conservative. As they are a close knit group, it was decided that the family would most likely lean to be more risky.

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Because having a group is not a guarantee, it was looked into when groups may be better than individuals or vice versa. This question boils down to the actual situation in place: certain times show a group is better and others prove an individual decision is best. The best defense against this type of conundrum is knowledge of the characteristics and benefits of both groups and individuals. Finally, application of the knowledge learned will give managers an edge when coming upon a situation where they want to use groups. As long as groupshift and groupthink are kept in check, groups should remain unhindered. Managers willing to learn the proper applications of this tool should also understand there are times when a group is not the most effective decision making model.

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References Conley, P. (2011). Buying a municipal bond fund . Retrieved from http://bonds.about.com/od/bondfunds/a/munibondfunds.htm Judge, T. A., & Robbins, S. P. (2011). Foundations of group behavior. In J. M. Olver, T. K. Lant, R. Plant, K. D. Majeske & S. R. Kursh (Eds.), Organizational Behavior (pp. 188-218). Boston: Pearson Learning Solutions. McGowan, L. (2011). 5 disadvantages of mutual funds . Retrieved from http://mutualfunds.about.com/od/mutualfundbasics/a/disadvmf.ht m?mr=680