https://doi.org/10.1140/epjb/s10051-023-00482-6
Regular Article - Statistical and Nonlinear Physics
On the efficacy of the wisdom of crowds to forecast economic indicators
Instituto de Física de São Carlos, Universidade de São Paulo, Caixa Postal 369, 13560-970, São Carlos, São Paulo, Brazil
Received:
20
December
2022
Accepted:
9
January
2023
Published online:
19
January
2023
The interest in the wisdom of crowds stems mainly from the possibility of combining independent forecasts from experts in the hope that many expert minds are better than a few. Hence the relevant subject of study nowadays is the Vox Expertorum rather than Galton’s original Vox Populi. Here we use the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters to analyze 15455 forecasting contests to predict a variety of economic indicators. We find that the median has advantages over the mean as a method to combine the experts’ estimates: the odds that the crowd beats all participants of a forecasting contest is 0.015 when the aggregation is given by the mean and 0.026 when it is given by the median. Both aggregation methods yield a 20% error on the average, which must be contrasted with the expected error of a randomly selected forecaster, which is about 22%. We conclude that selective attention is the most likely explanation for the mysterious high accuracy of the crowd reported in the literature. This conclusion is strengthened by the rebuff of the claim that this high accuracy results from the cancellation of the participants’ errors: we find no meaningful correlation between the asymmetry of the distribution of the individuals’ estimates and the collective error.
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© The Author(s), under exclusive licence to EDP Sciences, SIF and Springer-Verlag GmbH Germany, part of Springer Nature 2023. Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
