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The Wisdom of the Crowd in Dynamic Economies

Author

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  • Pietro Dindo

    (Department of Economics, University Of Venice CÃ Foscari)

  • Filippo Massari

    (Australian School of Business, University of New South Wales, Sydney, Australia)

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.

Suggested Citation

  • Pietro Dindo & Filippo Massari, 2017. "The Wisdom of the Crowd in Dynamic Economies," Working Papers 2017:17, Department of Economics, University of Venice "Ca' Foscari", revised 2018.
  • Handle: RePEc:ven:wpaper:2017:17
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    References listed on IDEAS

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    Cited by:

    1. Daniele Giachini, 2018. "Rationality and Asset Prices under Belief Heterogeneity," LEM Papers Series 2018/07, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Daniele Giachini, 2021. "Rationality and asset prices under belief heterogeneity," Journal of Evolutionary Economics, Springer, vol. 31(1), pages 207-233, January.
    3. Giulio Bottazzi & Pietro Dindo & Daniele Giachini, 2019. "Momentum and reversal in financial markets with persistent heterogeneity," Annals of Finance, Springer, vol. 15(4), pages 455-487, December.
    4. Filippo Massari, 2021. "Price probabilities: a class of Bayesian and non-Bayesian prediction rules," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 133-166, July.

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    More about this item

    Keywords

    Wisdom of the Crowd; Heterogeneous Beliefs; Market Selection Hypothesis; Naive Learning;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G1 - Financial Economics - - General Financial Markets

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