You hear those two comments often. Often from the same person. In the same breath.
Funny.
Mind you there is no shortage of mutually exclusive commentary in some heads:
- 'Trade the trend'
- 'Fade it, its overbought/oversold'
So is the crowd wise or a bunch of lemmings?
There is a way to tell.
It depends on how the mob complies its estimate:
If guesses are generated independently (the number of jelly beans in a jar, the weight of a cow at the country fair), then the crowd can be pretty accurate. But things can change if people are aware of others' opinions. There is a tendency towards "anchoring" (basing one's estimate on a fixed number, such as the average guess) and overshooting (the process that creates bubbles and crashes in financial markets).
This can be a particular problem for investment-bank analysts forecasting company profits or economists estimating GDP growth: few like to go out on a limb, for fear of being humiliated or fired if they are wrong.
That's from the Economist, the article there goes on with more on a forecasting website. Its gated, but you might have some luck: A new type of prediction market
