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Collective rationality and functional wisdom of the crowd in far-from-rational institutional investors

Author

Listed:
  • Kevin Primicerio

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay)

  • Damien Challet

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay)

  • Stanislao Gualdi

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay)

Abstract

The average portfolio structure of institutional investors is shown to have properties which account for transaction costs in an optimal way. This implies that financial institutions unknowingly display collective rationality, or Wisdom of the Crowd. Individual deviations from the rational benchmark are ample, which illustrates that system-wide rationality does not need nearly rational individuals. Finally we discuss the importance of accounting for constraints when assessing the presence of Wisdom of the Crowd.

Suggested Citation

  • Kevin Primicerio & Damien Challet & Stanislao Gualdi, 2020. "Collective rationality and functional wisdom of the crowd in far-from-rational institutional investors," Post-Print hal-04317258, HAL.
    • Handle: RePEc:hal:journl:hal-04317258
    DOI: 10.1007/s11403-020-00288-0
    Note: View the original document on HAL open archive server: https://hal.science/hal-04317258
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    References listed on IDEAS

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