Decision-making - Do you change behavior based on social setting?

Most investment managers are taught to act as if their clients are in the room when decisions are being made. It should make managers feel more like fiduciaries. Yet, there is an interesting question of whether economic actors will change their behavior if they are being observed or perceived they are being observed. In a simple case, does social setting change behavior; working together, observing others, or being observed.

This question is based on the Hawthorne effect from early industrial analysis of factory workers. It was noted that workers became more productive when they thought they were being watched. Behavior changes when being observed. The newer research on this effect is mixed, but it is an important question especially when focused on risk taking with investments.

This is an issue for decision making when there is more transparency or a social setting with the decisions. Research in Judgment and Decision  Making, "Observing others' behavior and risk taking in decisions from experience" suggests that when working on a task with a pair versus alone, there will be more choosing of risky selections. Social pressure will lead to greater risk taking. This is especially the case if there are rare-loss conditions. Social conformity and greater risk taking is stronger when the risk is less likely.

Extending the research, the paper found that when someone is said to be watched, the greater risk-taking effect is not present, but the decision-maker will make riskier selections when watching the behavior of others. So, there is a Hawthorne effect, albeit mixed.

Social setting for decisions matter. You will not get this social effect with systematic investing. I think this is an issue that should be further explored. Does the group lead to greater risk-taking or are extremes tempered? This initial work says that you should beware of social dynamics. People change when not working alone and the bias is toward more risk taking.