Final answer:
Decentralized decision making requires strong social cohesion, clear communication, and a balance between transaction costs and conformity costs. it may leverage personal relationships in small groups or formal mechanisms in larger ones, all aimed at reaching a consensus that reflects the group's diverse interests.
Step-by-step explanation:
Critical to the success of decentralized decision making are several key factors which ensure that the collective action yields effective and acceptable results. Firstly, strong social cohesion and clear communication channels are essential, as they create a foundation for effective community-wide consensus-building, as well as facilitating the flow of information and ideas between all stakeholders. This social cohesion is vital for achieving lower conformity costs, ensuring that the final decisions made reflect the diverse interests and preferences within the community.
Secondly, the decision-making process must appropriately balance transaction costs and conformity costs. For rapid and pressing decisions, such as a country under attack, minimizing transaction costs is preferable to facilitate quick and decisive action. Conversely, for less urgent matters that benefit from inclusive dialogue, like determining a political party's platform, reducing conformity costs by listening to multiple voices might be more important, even if it results in higher transaction costs. Lastly, it's important to note that decentralized decision making does not necessitate strictly formal mechanisms for small groups where personal relationships can help navigate collective action problems. However, for larger groups or more complex decisions, the formulation of procedures and guidelines can help manage the rising transaction costs and ensure that decision-making remains practicable and democratic.