RESEARCH CORNER

Editor: This month's magazine marks the first instalment of "Research Corner, "a new regular column in which Professor Kin Lo will share news about leading-edge accounting research in BC and around the world.

Are two heads better than one?

Accepted wisdom suggests that the answer must be "yes." We generally expect that a solution devised by two or more people will be better than a solution devised by one person alone. Certainly, this belief underpins the prevalent use of teams and committees in both business and non-business settings.

A recent research paper challenges this assumption, however.1 At a workshop held this past fall at the University of EC's Sauder School of Business, Professor Lawrence Brown from Georgia State University discussed his study of stock analysts' forecasts of accounting earnings. The end result was surprising: After reviewing approximately 7,000 forecasts made by teams and almost 300,000 forecasts made by individual analysts, Professor Brown and his colleagues found the team forecasts significantly less accurate than those made by individuals.

Moreover, this result held true when the analysis was restricted to firms that had both team and individual forecasters-in other words, given the same underlying task, teams did worse than individuals.

Additional analysis reveals that members of analyst teams are more likely to have a history of high performance and high reputation, suggesting that brokerage houses try to obtain a halo effect from putting star analysts on their teams.

The more general implication is that we should be careful about how we structure teams and committees. For instance, bringing big names onto a team may add credibility, but the outcome is not necessarily better; in fact, the outcome is often worse, with figureheads taking the place of masterminds.

So, are two heads better than one? Perhaps the most accurate answer is: "sometimes."

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