I Was Going To Ignore This…
…sloppily written column putatively about the “dumbness of crowds” in the WSJ by Jason Zweig, but a friend recently emailed it to me with questions after I had presented on Prediction Markets to a crowd at The Society of Competitive Intelligence Professionals annual conference in Chicago last week. As one commenter noted, trying to be zippy and flip, Zweig clearly displayed his ignorance of the Wisdom of Crowds. The wisdom of crowds works under three conditions, pretty much all of which are violated in the case of the committees he describes: Independence, Diversity and Decentralization. You’d think that after 120 years of publication the WSJ would set their authors down and run ‘em through efficient markets and price discovery 101. And how about this howler:
Measure what makes success. When selecting an outside money manager, a committee should decide, based on research and its own experience, which factors predict success. The most likely candidates: low expenses, tight risk controls, long investment horizons and managers with long tenure. Each of these factors can be measured with objective data.
By success I presume he means benchmark outperformance. Predict? Predict?? I’d love to see the regression equation of these factors that “predicts” success. Yes, a low expense manager in the past is likely to be a low expense manager in the future, but that is obvious. This whole piece is a muddle. Hope they can do better next time.
