Author Archive

‘Wisdom of Crowds’ is Surprisingly Dumb

I had to chuckle when I read the following on Bloomberg yesterday:

Paddy Power Plc said it was left “red-faced” after paying out early to gamblers who incorrectly bet that Greek voters would back an austerity referendum. Ireland’s biggest bookmaker “paid out five figures” in winnings on July 1, days before Greece rejected further austerity, with a larger-than-forecast 61 percent of the vote for the “no” campaign. - Paddy Power Left ‘Red Faced’ After Early Payout on Greek Vote

The delicious irony of a prediction market making an early payment on an incorrect prediction of a political referendum was simply too wonderful to pass up without comment. So today’s column is on why predictions markets fail, and that contrary to common beliefs, the crowd often has surprisingly little wisdom.

The “wisdom of crowds” is a colloquial way of describing the market as a complex system. The work on wisdom of crowds shows that when certain conditions are met — diversity, aggregation, and incentives — markets tend to be efficient. Conversely, when one or more of those conditions are violated, markets can and do become inefficient, i.e., price is no longer an unbiased reflection of value.  - Michael Mauboussin (emphasis added)

 Wisdom, “having the quality of having experience, knowledge, and good judgment,” hardly describes the random, chaotic behavior of markets in general, but especially does not describe prediction or betting markets.

Before we get into the details, a preface: Markets are by definition a crowd.


Continues here: The ‘Wisdom of Crowds’ Is Not That Wise




Category: Markets, Philosophy, Real Estate

Asset Class Performance, 1H 2015

One of my favorite — and most instructive charts — is the asset allocation quilt: Click for ginormous graphic Source: Novel Investor  

Category: Asset Allocation, Digital Media, Markets

10 Tuesday AM Reads

My Two-fer-Tuesday morning train reads: • Yanis Varoufakis: Angela Merkel has a red and a yellow button. One ends the crisis. Which does she push? (Guardian) see also How Greece leaving the euro would actually work (Vox) • Forget Bitcoin — What Is the Blockchain and Why Should You Care? (Re/Code) but see Bitcoin being forked? (FT Alphaville) • Luxury Brands Have…Read More

Category: Financial Press

CEO Pay Boosted by Stock Buybacks

Buybacks and Dividends Are Making CEOs Even Richer Source: Bloomberg

Category: Corporate Management, Digital Media, Finance

July 14th: Time for Pluto’s Close-Up

On July 14, 2015 the New Horizons spacecraft will zip past Pluto and its five known moons. Nobody really knows what it will find

SPACE & COSMOS|Almost Time for Pluto’s Close-Up

Source: NYT

Category: Science, Video

Data Never Sleeps 2.0

We first looked at this back in June 2012; here is the updated version:     Source: Domo

Category: Digital Media, Technology, Web/Tech

Health Insurer Merger Mania



Source: Knowledge@Wharton


Category: M&A, Video

Greeks Say ‘Oxi’ to Lemon Socialism

What do Greece, Ireland and the U.S.have in common? Each experienced what was termed at the time a “new financial era” that produced an enormous expansion of its finance sector. This led to an intoxicating combination of aggressive lending, leverage and recklessness. In each case, the era ended in a financial crisis; perhaps most important,…Read More

Category: Bailouts, Credit

10 Monday AM Reads

Welcome back to the monkey house. Here are our post-referendum morning train reads: • How ‘vision’ messed up Europe (FT) but see Europeans tried to block IMF debt report on Greece (Reuters) • Don’t Let The Disappointing June Jobs Report Distract From The Long-Term Trend (fivethirtyeight) • Traders’ hormones’ may destabilize financial markets (Science Daily) see also Raging Bull Markets: How Young Men’s…Read More

Category: Financial Press

The Trojan Finger

Via Twitter:

Category: Bailouts, Humor