Prediction/Experts/Laymen/Individuals/Groups/Sunstein: statistically selected groups of experts had made 12.5% fewer misjudgements than individual experts on issues as diverse as poultry prices, gross national product, patients' chances of survival, housing development. (1)
This means that companies are better off listening to the advice of many experts than hiring external consultants. (2)
Election Forecasts/Political Forecasts/Sunstein: here it has become standard practice to examine a lot of election results and take the median. In the USA, the Polly system was used for this purpose in 2004. (3)
Problem/Sunstein: if several surveys are taken together and investigated, they usually did not ask the same questions. One then tries to find out a pattern of attitudes on which these different questions are based. (4)
Prediction markets/forecast markets/Sunstein: Examples where information markets are efficient: For example, to recognize tendencies of air pollution, or to observe deficits in public budgets. (5) for example to track outbreaks of diseases and predict their spread, or to observe the solvency of institutions. (6)
Manipulation: Candidate Pat Buchanan's supporters bought large quantities of shares in the IEM (Iowa Electronic Market, a prediction market for elections) in 2000 to manipulate the forecasts. However, better informed investors subsequently took advantage of this to their benefit.
Tendencies: one often sees that a candidate's supporter believes in the victory of this particular candidate. In 1980, for example, 87% of Jimmy Carter's supporters believed in his victory and 80% of Ronald Reagan's supporters believed in their candidate's victory. (7) This is not surprising, but limits the predictive power. People process new information in such a way that it can be integrated into their previous world view. For this reason, many investors also lose money on the stock market.
Marginal Trader Hypothesis: this thesis exploits this and is oriented towards the behaviour of a small group of traders identified as one that is less susceptible to tendencies.
There was a famous bet between Julian Simon and Paul Ehrlich on the scarcity of natural resources. (8) Simon had predicted that they were inexhaustible. In 1980, Ehrlich and Simon bet on prices for raw materials that Ehrlich picked out. Simon won because the prices dropped until 1990.
Sunstein: If there had already been information markets at that time, they would have tended strongly towards Simon.
1. See Armstrong, “Combining Forecasts,” 419–20. For many factual questions, of course, a little research would be sufficient to identify the correct answers. But for some factual issues, even significant research is inconclusive, and it is best to consult experts. pp. 428, 430-31
2. ibid. p. 428.
3. See Alfred Cuzán et al., “Combining Methods to Forecast the 2004 Presidential Presidential Election: The Pollyvote” (unpublished manuscript, Jan. 6, 2005), 12, available at http://www.politi calforecasting.com.
4. I am grateful to Robert MacCoun for this point.
5. See Abramowicz, “Prediction Markets, Administrative Decisionmaking, and Predictive Cost-Benefit Analysis,” pp. 990–92.
6. ibid. pp. 987-90
7. Donald Granberg and Edward Brent, “When Prophesy Bends: The Preference-Expectation Link in U.S. Presidential Elections, 1952–1980,” Journal of Personality and Social Psychology 45 (1983): 479. 65. See Wolfers and Zitzewitz, “Prediction.
8. For an overview, see “FAQ: People, Julian Simon’s Bet with Paul Ehrlich,” Overpopulation.com, at http://www.overpopulation.com/faq/People/julian_simon.html (last visited Jan. 28, 2005)._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Cass R. Sunstein
Infotopia: How Many Minds Produce Knowledge Oxford 2008
Cass R. Sunstein
#Republic: Divided Democracy in the Age of Social Media Princeton 2017