This past weekend, David Leonhardt, Washington bureau chief of the New York Times, had a smart essay about who makes better predictions -- informed experts versus the collective wisdom of a market? As is often the case, the answer is: it depends on what you're trying to predict.
The essay is a quick read, but here's Leonhardt's conclusion for the impatient: "The answer, I think, is to take the best of what both experts and markets have to offer, realizing that the combination of the two offers a better window onto the future than either alone. Markets are at their best when they can synthesize large amounts of disparate information, as on an election night. Experts are most useful when a system exists to identify the most truly knowledgeable — a system that often resembles a market."
The essay is a quick read, but here's Leonhardt's conclusion for the impatient: "The answer, I think, is to take the best of what both experts and markets have to offer, realizing that the combination of the two offers a better window onto the future than either alone. Markets are at their best when they can synthesize large amounts of disparate information, as on an election night. Experts are most useful when a system exists to identify the most truly knowledgeable — a system that often resembles a market."
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