The Wisdom of the Crowd in Dynamic Economies

60 Pages Posted: 19 Sep 2017 Last revised: 27 Nov 2018

See all articles by Pietro Dindo

Pietro Dindo

Ca Foscari University of Venice - Dipartimento di Economia

Filippo Massari

Bocconi University - Department of Decision Sciences; University of East Anglia

Date Written: September 7, 2017

Abstract

The Wisdom of the Crowd applied to financial markets asserts that prices represent a consensus belief that is more accurate than individual beliefs. However, a market selection argument implies that prices eventually reflect only the beliefs of the most accurate agent. In this paper, we show how to reconcile these alternative points of view. In markets in which agents naively learn from equilibrium prices, a dynamic Wisdom of the Crowd holds. Market participation increases agents’ accuracy, and equilibrium prices are more accurate than the most accurate agent.

Keywords: Wisdom of the Crowd, Heterogeneous Beliefs, Market Selection Hypothesis, Naive Learning

JEL Classification: D53, D01, G1

Suggested Citation

Dindo, Pietro and Massari, Filippo, The Wisdom of the Crowd in Dynamic Economies (September 7, 2017). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 17/WP/2017 , Available at SSRN: https://ssrn.com/abstract=3038309 or http://dx.doi.org/10.2139/ssrn.3038309

Pietro Dindo

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Filippo Massari (Contact Author)

Bocconi University - Department of Decision Sciences ( email )

Via Roentgen 1
Milan, 20136
Italy

University of East Anglia ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

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