wisdom of the few versus randomness
Teppo
There’s some chatter and excitement on the web about the “wisdom of the few” (e.g., see this TechCrunch post). In short, while crowds may indeed get it right, weeding out all those that are wrong and focusing on the winners seems like an efficient heuristic. Here’s a Washington Post piece on the matter, which includes some healthy scepticism from academics. Online companies such as PicksPal.com (and Marketocracy) are trying to capitalize on the wisdom of the few.
One of the problems with the logic of the “wisdom” of the few of course is that winning picks may simply be a function of randomness. Armen Alchian, in his 1950 Journal of Political Economy piece, notes that we can get significant and persistent heterogeneity, or, in effect, the appearance of expertise or wisdom, simply through luck or randomness (his reference to the mathematician Borel’s thought experiment is fantastic). (Here’s a 2004 Management Science piece modeling the same thing). If you get enough people guessing on outcomes, inevitably you’ll have winners and “wisdom,” even persistently so.
