Posts filed under “Philosophy”

‘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

Greece Referendum Results: No, 61.31%; Yes, 38.69%

  Strap in — tomorrow is going to be a busy day:   click for Greek voting results Source:  

Category: Bailouts, Philosophy

Krugman vs Austerians

Hilarious: click for interactive media    

Category: Financial Press, Humor, Philosophy

The Days Are Long, But The Decades Are Short . . .

Dictionary of Obscure Sorrows: time is passing more quickly as we get older.



Category: Philosophy, Video, Weekend

Buffett on Stock Prices

Its early in this potential correction, but let me remind you of Buffett’s interesting (1997) comments: “If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but…Read More

Category: Bad Math, Investing, Philosophy

Learning From Failure: Performing an Autopsy on Dead Start Ups

  There has been relentless coverage of the boom in technology startups. Think about the blasé way the word bubble gets tossed about. Big Wall Street banks and Silicon Valley venture capital firms are wooing geek talent, and investors seem willing once again to ignore the widespread use of unconventional financial accountingthat makes a start-up’s finances look much better…Read More

Category: Philosophy, Technology, Venture Capital, Web/Tech

NFP: Is Good News Bad News?

Over the years, I have spilled far too many pixels on how overhyped the monthly nonfarm payroll report is. What matters isn’t any single month, given how noisy and subject to future revisions the provisional release actually is. The recency effect makes you place a greater emphasis on what just occurred in a data series, a sign of the evolutionary leftover code hanging around your wetware….Read More

Category: Employment, Federal Reserve, Philosophy

Best Commencement Speech Advice for 2015

click for ginormous graphic Source: Bloomberg

Category: Digital Media, Philosophy

Are Polls Always “Skewed” Against Republicans?

In my widely-discussed recent paper on Fox News, I suggested that its Republican bias was hurting the GOP in many ways. One specific example I raised on CNN’s “Reliable Sources” was that Republicans deluded themselves that Mitt Romney was doing better than he really was in 2012 due to cheerleading coverage on Fox, the only…Read More

Category: Financial Press, Philosophy, Politics


THEN Privacy NOW Everybody knows everything and despite protestations, you provide this information willingly, on Facebook, Instagram… We all want to be known, until we don’t. THEN Skirts had to cover the knee. NOW Young women raise their shirts to show their boobies and sext their friends. Pornography used to be underground, now all you…Read More

Category: Philosophy, Think Tank