Is a Team Different From the Sum of Its Parts? Evidence from Mutual Fund Managers

This paper provides the first empirical test of the diversification of opinion theory and the group shift theory using real business data. Our data set covers management teams and single managers of US equity mutual funds. All our results clearly reject the group shift theory and support the diversification of opinion theory: extreme opinions of single team managers average out and, consequently, teams take less extreme decisions than individuals do. We find that teams follow less extreme risk strategies and less extreme investment styles than single managers do. Consequently, teams are much less likely to achieve extreme performance outcomes.