Do teams alleviate or exacerbate overreaction in beliefs?

Abstract

We investigate whether teams exhibit increased or reduced overreaction in expectation formation relative to individuals. Using preregistered randomized experiments that directly elicit expectations about future returns, we find that teams display lower belief overreaction to recent investment performance. A quantitative decomposition shows that this team effect stems primarily from a “self-selection” mechanism, whereby the most biased team member chooses to influence the team decision less. An LLM-based analysis of team interactions reinforces this result. A complementary analysis of US equity mutual fund managers operating both individually and as part of a team yields consistent evidence of lower overreaction in teams.