اعتماد به نفس کاذب، کمیته سیاست های پولی و تسلط ریاست

Monetary policy decisions are typically characterized by three features: (i) decisions are made by a committee, (ii) the committee members often disagree, and (iii) the chairman is almost never on the losing side in the vote. We show that the combination of overconfident policymakers and a chairman with agenda-setting rights can explain all these features. The optimal agenda-setting power to the chairman is a strictly concave function of the degree of overconfidence. We also show that the quality of advice produced by the central bank staff is higher in a flat organization than in a hierarchical one.

Overconfidence is arguably the best established cognitive bias in the psychology of judgment.1DellaVigna (2009, p. 341) compactly summarize the bias, arguing that people tend to “…over-estimate their performance in tasks requiring ability, including the precision of their knowledge.” Overconfidence has been documented among decision makers in many professions, including physicians, investment bankers, engineers, lawyers and managers.2 In this paper, we investigate the consequences of possible overconfidence among decision makers involved in monetary policy decisions.3 We show that overconfidence yields predictions about monetary policymaking that is consistent with a set of stylized facts that cannot be easily explained with existing theories. These facts include (i) disagreement within monetary policy committees (MPCs) after deliberations, (ii) provision of decision power to MPC members, and (iii) that chairmen of MPCs are (almost) never on the losing side when the committees vote. According to our model, the typical decision structures in contemporary central banks can be seen as an example of “Behavioral Institutional Design” (DellaVigna, 2009). The structures are designed to counteract the effects of cognitive biases and thereby improve welfare. An important trend in practical monetary policy is the move from individual decision making to committee decision making. The main explanation for this trend in the literature is simple: “two heads are better than one”. Monetary policy committees (MPCs) improve decisions by pooling members’ information and knowledge (see, e.g., Blinder, 2007). Although information pooling within the committee is relevant to understand the transition from individual decision making, it cannot alone explain the use of MPCs. To see this, it is useful to distinguish between two types of information pooling, which we will denote ‘pooling by talking’ and ‘pooling by voting’. ‘Pooling by talking’ refers to the sharing of views and information among MPC members during deliberations. ‘Pooling by voting’ refers to the implicit pooling that takes place after deliberations when the MPC votes, or use some other aggregation mechanism, to aggregate the different opinions into one decision. Following Condorcet's famous jury theorem, a huge literature on ‘pooling by voting’ (‘Condorcet effects’) has emerged. This literature describes under what conditions voting improves on decisions, see, e.g., Koriyama and Szentes (2009) and references therein. Gerlach-Kristen (2006) uses a theoretical macroeconomic model to study Condorcet-effects in MPCs when there is uncertainty and disagreement about the size of the output gap.4 If there are no frictions in ‘pooling by talking’, each member should take the other members’ information and arguments into account, and full agreement would result.5 As Blinder (2007) also points out, then you do not need a decision-making committee to achieve the pooling benefits. The pooling gains can be achieved by having independent board members serving as mere advisors to the chairman (as is the arrangement at the Reserve Bank of New Zealand). Alternatively the pooling benefits can be captured by the central bank staff on behalf of the central bank governor. If there are frictions in ‘pooling by talking’, the MPC members may end up disagreeing also after the deliberation round. We observe extensive disagreement among MPC members in practice, suggesting that ‘pooling by talking’ is not frictionless. This creates a potential role for ‘pooling by voting’. MPC members are distinguished from central bank staff members in that they have decision power, whereas staff members have only advisory power. The staff can contribute to decisions through ‘pooling by talking’, while MPC members can contribute through both ‘pooling by talking’ and ‘pooling by voting’. The common institutional setup in central banks is that there is an MPC where each member has decision power, but where the chairman (and other internal members) has access to a staff. 6 An additional stylized fact is that the chairman is almost always in the majority coalition. 7 How can overconfidence help explain the use of MPCs? Consider a central bank chairman who receives information and judgments from his staff, but who also has a private signal about the unknown “optimal” interest rate. If he is an unbiased information aggregator, he will optimally weigh the staff's advice and his own signal. To the extent that more people should be involved in the monetary policy decisions, these can be hired as advisors because the chairman will take their views properly into account. If, however, the chairman is overconfident, he will place a too high weight on his own signal and underweight the advice from his staff. Thus, an overconfident chairman does not extract all potential pooling gains inherent in his staff's advice. This increases the risk of bad policy decisions if he alone decides. An MPC with decision power can reduce the risk induced by overconfidence not only because it can intervene against extreme policy proposals, but also a chairman who has to bring his views to a committee will moderate his proposals. Giving decision power to the MPC is a necessary condition for such moderation to take place. These results hold even though all committee members are subject to the same overconfidence bias. Our approach suggests a different understanding of the role of MPC members: rather than thinking of MPCs primarily as tools for information pooling, we interpret them primarily as an insurance mechanism against extreme actions from a single policymaker.8 Overconfidence precludes agreement about policy in a committee, and it has consequences for the optimal allocation of decision power in the MPC. Through the chairman's unique access to the central bank staff (and perhaps superior competence), the chairman's policy view should on average carry a higher weight than rank-and-file members’. However, overconfidence gives him a suboptimal influence on policy if it is set through simple majority voting. Giving the chairman the agenda-setting right (i.e., the right to propose a policy action that other members must vote for or against) yields an extra layer of decision power, and is a mechanism for restoring (or approaching) his optimal influence. In addition to the papers mentioned above, our model is related to work by Lohmann (1992), Riboni and Ruge-Murcia (2008), and Gerlach-Kristen (2008), but as we discuss below it differs in important respects. The most closely related contribution is Gerlach-Kristen (2008), who studies a model with communication errors between MPC members which also yield disagreement among MPC members after deliberations. Although we have another microfoundation and our model of voting and agenda setting is less reduced form, it shares the property that the chairman adjusts his proposal so as to achieve a majority in the MPC. Also in contrast to Gerlach-Kristen (2008) we study normative implications with regard to agenda setting power and the organization of the central bank staff. The remainder of the paper is organized as follows: in Section 2 we review the evidence on leader dominance and dissent in MPCs. We also briefly discuss the evidence of overconfidence among decision makers, and make the case for its relevance in monetary policy making. In Section 3 we develop a simple model of policy opinions. We show how overconfidence leads to suboptimal use of other people's views and how it precludes agreement among policymakers. With disagreement about policy also after deliberations, there is need for a mechanism to aggregate individual judgments into a policy decision. In Section 4, we explore such a mechanism by developing an agenda-setting model for monetary policy. In Section 5, we turn to normative implications of our model. We discuss the optimal power of the chairman in MPCs, the merits of having central bank insiders on the MPC, and, in particular, the implications of overconfidence for the organization of advice transmission within the central bank staff. Section 6 concludes the paper.

In contemporary central banking, the formal decision power over monetary policy is delegated to an MPC rather than a single individual. There is considerable disagreement about policy within MPCs, leading to a great deal of dissent in actual policy decisions. Yet, MPC chairmen almost never lose a vote about monetary policy. In this paper, we have provided a theory for these stylized facts about the decision structure in modern central banks. Our theory rests on the notion that people are not perfect information aggregators, and in particular that they may be subject to overconfidence. An MPC with decision power reduces the policy risk occurring when an overconfident chairman gives a suboptimal weight to staff judgments. Overconfidence also yields disagreement and dissent among decision makers, and this gives the chairman too little influence if policy is set through simple majority voting. Giving the chairman extra decision power through agenda-setting rights restores his influence, but also means that he generally will not lose when there is a vote in the MPC. We emphasize that the MPC still has important, but largely unobservable policy influence by inducing moderation from the chairman (and his staff). We have seen that even though overconfidence provides a reason for an institutional setting where the chairman has agenda setting power, the extent of such power should be limited if overconfidence is perceived to be a severe problem. Neither a chairman deciding alone or an MPC with simple majority voting are optimal as long as there is positive but a bounded degree of overconfidence. Finally, we have shown that overconfidence implies that flat structures of information transmission within the central bank staff are superior to hierarchical structures in terms of the quality of advice reaching the bank's chairman.