How Markets Demonstrate Asymmetrical Wisdom of Crowds (and What It Means for You)

You’d be surprised at how much wisdom is in a group of people. Yes, this is true even when the group isn’t (shall we say) stellar intellectually. The wisdom I’m talking about is called the wisdom of the crowd. 

This idea that the collective tends to have an incredible aggregate knowledge that is often much better than any individual expert or technology has received much acclaim from several contemporary books like this one by the same name. However, Socrates could be the earliest known thinker to reference the concept. 

The power of the crowd is so powerful that markets regularly predict election outcomes better than polls. 

Markets, like PredictIt.org, allow people to wager their guess at various elections. This model has been replicated outside of politics, as well. Similar markets often have the highest accuracy in predicting Oscar and Grammy winners just the same. 

Consider the main difference between a poll and a market. Both are essentially ways to answer a question about the future, yet markets repeatedly prevail. The main difference, of course, is the wager. 

That’s right. The market requires skin in the game. Folks, participating in markets have something to lose. This simple realization carries interesting implications (that have nothing to do with a free market political commentary, which I’m not here to make). 

The commentary I am making, however, is simple. Performance, efficacy, positive outcomes, and a host of other elements improve when the participants have something to lose. Frankly, if you’re out in the world speaking, doing, or projecting something in the world without skin-in-the-game, you’re likely not helping.