Groupthink and Irish Financial Crisis
- Efstathiou Thalia
- Papaeracleous Elena
- Papoulla Pantelitsa
- Tritas Tasos
- Tsoulli Andri
The complexity of
today’s organizations has increased the need of effective . on the ability of its members to arrive consistently at appropriate decisions. There are many forces that affect the decision making group, one of groupthink [Thalia Ef1].
he term whe the opinion of other members of the group because they desire harmony and conformity. Members set aside their own beliefs try to minimize conflict and reach a consensus decision without critical evaluation of alternative solutions. The conformity of the group eliminates the individual’s creativity or responsibility for a step forward decision. The members of the group, victims of the groupthink effect, tend to compromise with the decisions of the group, leading to sub-optimized decisions. The repeated non-optimum decisions that are made lead to negative performance which in turn may lead the downfall of the
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Groupthink effect can be detrimental for organizations. Individuals suppress their personal thoughts and accept others opinion without . Groupthink can crush the innovation in an organization. Innovators may be willing to take alternative paths but often those courses of action are not very realistic in a groupthink environment. Due to that many organizations fail to respond to market trends or adopt new technologies. The organization is following a “safe” direction but in reality is not able to take decision that will extent and empower its presence in markets [Thalia Ef2].
Behavioural research and studies show that behind corporate and public disasters, there is a group of participants responsible for the decisions made that often are «victims» of the phenomenon called groupthink.
The more amiability and esprit de corps there is among the members of a policy-making in-group, the greater the danger that the independent critical thinking will be replaced by groupthink, which is likely to result in irrational and dehumanizing actions directed against out-group.[Thalia Ef4]
Janis’s studies the following eight symptoms of groupthink :
The members of the group share an illusion of invulnerability that creates excessive optimism and encourages them to take extreme risks, failing to respond to obvious warnings of danger.
The members tend to construct collective rationalization and so they discount warnings or other negative feedback and as a result they do not reconsider their assumptions.
Believing in inherent morality leads the group members to ignore the ethical and moral consequences of their decisions.
The group thinkers hold stereotyped views of out-groups, or the “enemy groups”. This makes them believe that attempts to negotiate differences are unnecessary and unwarranted
The members of the group are under direct pressure not to express arguments or doubts against any of the group‘s views.
Victims of groupthink avoid expressing doubts and deviations from the perceived group consensus, “they keep silent about their misgivings and even minimize the importance of their doubts”.
The group members share the illusion of unanimity, since the majority of those members who speak have views and judgments which seem to be unanimous, by making the false assumption that anyone who remains silent during a discussion is in full agreement with the others.
Victims of groupthink tend to be self-appointed mindguards, to protect the group and the leader from problematic or contradictory information that might damage the group’s cohesiveness, or create doubts about the morality of the group’s views or decision
An example of such disaster was observed in the Irish financial Crisis. Doctor of Political Sciences was appointed by the Irish Government to investigate what went wrong between bankers, regulators and others and frequently found behavior exhibiting bandwagon effects such as groupthink
Doctor o[Thalia Ef5]
“In economics the majority is always wrong” – J.K Galbraith [Thalia Ef6]
As with most countries worldwide, Ireland has been facing an economic has started in 2008. Ireland currently is performing positively and it is considered that it has come out of this recession. However, by analyzing the factors that led the country to this int, groupthink identified as .
The main reason for the crisis in the country was the unhindered expansion of the property bubble financed by the banks using wholesale market funding.
roupthink financial crisis Ireland, is mostly based on the report that was published from the Commission Investigation into the Banking Sector Ireland concludes that bankers, regulators and others were prey to “groupthink”.
Biases in judgment and decision-making were instrumental in the development and severity of the crisis rapid financial integration and lack of relevant past experience may have increased the vulnerability of decision-makers to economic and financial reasoning that proved disadvantageous.
Nyberg use the term ‘groupthink’ to describe the mindset that prevailed during the boom years, when banks lent out money indiscriminately. His criticism was not confined to the banks, but to other groups, including the ‘mainstream’, bought into the bubble mentality.
, consequences and having the illusion that nothing could go wrong, both symptoms with aspects of morality and invulnerability in groupthink mode. [UCY8]
ΑκÏŒμα Îνα γεγονÏŒς το οποÎ¯ο Îπαπιξε σημαντικÏŒ ρÏŒλο στην οικονομικÎ® κρÎ¯ση της ΙρλανδÎ¯ας Î®ρταν το ÏŒτι οι
[UCY9]Οι τρÎ¬πεζες δεν πÎ¯στευαν ποτÎ ÏŒτι θα Îφταναν σε αυτÏŒ το σημειο αφοÏ και πÎ¬λι υπÎ®ρχε η αυταπÎ¬τη του ατρÏŒμητου που σε κÎ¬νει να αγνοεÎ¯ς τα σÎ®ματα κινδÏνου.
The symptom of unanimity, as described above is occurring again in the case irish crisis, according to Nybergs report. because of [UCY11]
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Ireland ‘s economy started to grow in the mid-1990s- and it is considered as “late” compared to their European neighbors. Ireland’s economy had taken the path to growth, by offering business friendly environments low tax rates (i.e.), high educated work-force and perhaps most important they offered land-property to invest. “Joining the Eurozone, Irelands banks gained increased access to wholesale funding at a relatively low cost. As retail and corporate deposits were not sufficient to fund lending growth and enabled the banks to respond to competition .” [elena [Thalia Ef12] 1]. Ireland ‘s productivity increased followed by, foreign banks and property investors who started to show interest in expanding their business and services in Ireland. As sequence the need from the Government and Banks to keep up with this new flow became more intense; leading Banks to get carried away by that intensity before they even became aware with it. Banks and their members [Thalia Ef13] had started to feel the huge competitiveness by other foreign banks and from other foreign invest-property competitors. In order to remain in the property market field they begin taking risks; with no rational thinking and objective; nor did they have any second thoughts. The decisions that put at risk the entire economy were established due to the absence of legal supervision and an insufficient regulation policy. They offered low rates and similarly other smaller banks and foreign-owned banks felt emerged to do same. Banks exposed statements with huge funds and property as assets and became more and more tempting for potential investors. Somehow, risks were ignored by both banks and borrowers. Borrowers took advantage of the formal lending policy and as consequence the lending on credit expanded so rapidly that it led to severe liquidity problems and solvency. As result, Ireland falls into an economic downturn, in deep recession and forced to request financial aid from Europe[Thalia Ef14] . We could argue [Thalia Ef15] t hat the members of the Banks board who took the crucial decisions were in line with the norms of groupthink. Our example for the groupthink and financial crisis in Ireland, is mostly based on the report that was published from the Commission for Investigation into the Banking Sector in Ireland (Nyberg, 2011), which concludes that bankers, regulators and others were in line with the norms of groupthink. Mr. Peter Nyberg was appointed as the sole Member of the Commission of Investigation. Nyberg use the term ‘groupthink’ to describe the mindset that prevailed during the years of crisis, when banks lent out extensively. [Thalia Ef16] The illusion that nothing could go wrong, the failure to explore for other alternatives, According to Nybergs report (elena 3 [Thalia Ef17] )as warnings began to alert, the group acted in defensive mode ignoring their existence. It is believed that there were arguments against some of the determinant decisions but they were never brought up, or if they were brought up they were ignored. This is one of the main symptoms of groupthink, were the members of the group have the illusion of invulnerability. Another symptom that is in line with the above, A belief in the fundamentals of the Irish property market and in the efficient operation of financial markets led to Groupthink, a psychological process that reduces the likelihood of critical views being aired. Financial integration in the euro area was deepening, and banks in Ireland had unprecedented access to cross-border funding. This put pressure on bank margins in Ireland. The report investigated the handling of the banking crisis and found that the crisis was essentially “home grown”. It was a result of domestic Irish decisions and actions, and not international developments. Groupthink occurs when a group of decision makers decides on a course of action without questioning underlying assumptions. As the period of prosperity continued, executives took more and more financial risks based on prior judgments.
It has been argued by several reports that human behavior was a determinant factor in the economy crisis Ireland faced. That is from members within their group, we could therefore argue that this group acted and were in the mode of groupthink. “ As groupthink is characterized by inward-looking, self-regulating and stereotypical behavior that can often lead to distorted and defective decision making “(elena 2) . In line with this we could also state that the group failed to see other alternatives, failed to filter their data that is to examine them more closely and failed re -examine their evaluation. The financial crisis Ireland faced, led to deep considerations by authorities and policy makers about their system, investigations were conducted likewise they were forced to make several re-evaluations and establish stricter law and policy regulators, all in line, that a crisis like the one the experienced will never be faced again.
Through comparison of of successful groups and those of groupthink-style, researchers in this area have been able to come up with ways to avoid or limit groupthink.
Firstly, the group leader should encourage open communication within the group and at the same time avoid stating his personal preferences and expectations. [1, 2] [Thalia Ef20]An open communication environment provides a platform for objections, disagreements, misgivings, concerns and alternatives. Group leaders should establish an environment where every opinion is important and carefully considered. It is more likely for group members to share their ideas when they know that the group they are part of fosters open communication.  According to Janis L. Irving a leader should not express his opinion when assigning a task to a group and should be absent from many of the group meetings to avoid excessively influencing the outcome. 
Another effective way to prevent groupthink is by instructing a team member to play the role of the ‘devil’s advocate’ within the group. The team member assigned the role takes an opposing view to the majority. This method triggers the discussion of opposing views leading each member to defend his ideas and decisions in order to convince others of their importance. Group members who are unable to support their views should revise them or adopt the views of others. 
An outside expert is considered a valuable shield to help guard against groupthink. The non-biased viewpoint based on research that the external experts bring, helps the team members to see the subject matter from a variety of angles. The fact that outside experts do not possess an allegiance to the group but seek to act in the best interest of the organization makes this method an invaluable asset against groupthink. An should bring in or be consulted by experts on a regular basis to allow group members to open up to the opinion of others. [1, 2]
Furthermore, by breaking up the homogeneous nature of the group members will be encouraged to explore alternatives. This can be achieved by dividing the group into sub-groups, where each sub-group will present its views and then the entire group makes a decision to select one of the ideas presented. 
Lastly, the group can hold a ‘second-chance’ meeting at a later date that gives the group one last chance to rethink the entire issue before making a definitive choice. [1, 2]
Whether the relationship is with your team, supervisor, manager, customer or coworker, you want to make your interpersonal relationships positive, supportive, clear, and empowering. In all circumstances and situations, working and cooperating with others is important for all kind of relationships. Whether that is at a personal level, professional level, or even national level as described above. Therefore, it is important to maintain teams that are based on trust and keep the lines of communication between the groupmembers open.
Creating efficient teams is challenging ut necessary . comfortable and warm atmosphere so as the team members will feel free to express their opinion. However, the level of informality differs, depending on the situation.
goal setting systems must on the group level as well veryone in the process
In order to have well performing teams, there must be clear goals, clear roles and responsibilities, positive relationships, trong leadership, clear procedures for problem solving, planning, completing tasks and evaluating performance. The development of team spirit is also important for empowering work teams.
In addition to the above, the meetings must be effective, so resource and energy . The expectations from the team’s performance and expected outcomes should be clearly communicated, as well as the reason why the team created .
The team members and especially the leader should pay attention to conflicts that may arise. If people let the problems to come to the surface, but in a constructive way this can be gainful for the team.