Wisdom of crowds, contd.

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As long-time readers know, I like to conduct experiments with my students to test the notion that a group is able to make more informed judgments than any single expert. Last fall’s experiment, involving the Klimts in the fall sales, was a stellar success. Our first experiment of 2007, concerning the Van Gogh in last week’s auction, was an unmitigated bust, since no one allowed for the possibility that the painting would find no buyer. But now I have good news that will restore your faith in the wisdom of crowds.

Four weeks ago, I asked the students to write down their guess for the hammer price of Francis Bacon’s “Second Version of Study for Bullfight No. 1.” The painting was bid up this Wednesday toBacon_2ndV_of_Study_for_B1.jpg $41 million (plus commission). The median estimate returned by the roughly 60 students was $42 million. Although their estimates ranged from $7 million to $120 million, no fewer than five of them got within a million dollars of the price. Maybe this technique should be used more broadly in setting sales estimates?

3 thoughts on “Wisdom of crowds, contd.”

  1. It’s similar to the dichotomy in the field of rating consumer products, particularly automobiles. Consumer Reports is a publication with an established testing facility. It employs experts who conduct trials and then review numerous products on a regular basis. J.D. Power and Associates goes directly to the public, conducting surveys among large populations of consumers who have actually used the products and then culling the feedback — opinions, perceptions, expectations — into an organized system of ratings.

    Admittedly it might be difficult to test drive a Rothko, while the “voice of the people” might be somewhat circumscribed if limited to a population of “users” of multi-million dollar art. Still, the essential difference is apparent. Does one seek expert analysis or count on the law of averages? Which is most effective? Perhaps it depends on how you line up on the famous dictum attributed to Abraham Lincoln: “You may fool all the people some of the time, you can even fool some of the people all of the time, but you cannot fool all of the people all the time.”

  2. This assumes that the auction houses are interested in setting accurate estimates all of the time, no? I know that at least in some cases the auction houses set estimates artificially low in order to draw out collectors who smell a potential deal.

    On a different note: I’m curious about how phrasing the “guess” differently might produce different results. Is it the same thing to ask the group to estimate what price a work of art will sell for at auction, and to ask the members of the group how much–given an unlimited budget–they would be willing to pay for the same work?

  3. The original impetus for this experiment came from the anecdote recounted in Jim Surowiecki’s “The Wisdom of Crowds,” where it famously applied to guessing the weight of cows at a livestock show. It applies to guesses about some kind of objective fact — the weight of a cow in the anecdote, or the ultimate sale price of a work at a given auction, in our case. How would the experiement skew if the students had to note their subjective perceptions about their willingness to pay, rather than their estimate of an ultimate outcome? I don’t know. My feeling is that the two figures may be close.

    In any event, the real questions beneath all this is whether a market consensus is guesseable, and how you access that insight. It may be best to rely on the judgment of novices. Because if you relied on the guesses of collectors (or auctioneers) — in other words, people who help set the terms of the sale — you may get into what George Soros called “reflexivity”: that your own guess about the course of reality will begin to shape that aspect of reality.

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