Tuesday, May 2nd, 2017
surprisingly popular

For the first four years of this century, I taught at the University of Minnesota’s Carlson School of Management.  The classes were made up of MBA students who managed real-money equity and fixed income funds that had been established by the school (now totaling around $35 millionCarlson School of Management | The students working on the funds now include undergraduates as well as MBAs.).

In addition to learning about the operating aspects of the funds, the students wrote in-depth reports and gave presentations to a group of industry mentors about investments that they wanted to make.  (A recent experience as a judge at the CFA Research Challenge Americas competitionFreezing Assets | Here’s a piece that I wrote about that competition (and the importance of good communication skills in presenting research ideas). reminded me of those student presentations.)  The class sessions that were a part of the program usually included a discussion of a recent development in the markets or the investment business, a lecture, and, more often than not, a survey.

Those surveys took a basic form.  Each student would pick his or her answer to a multiple-choice question — or provide a prediction about something — and then also state what was likely to be the most common answer from the group.  I had never taken a survey like that myself; I just thought using that approach might provide some insights into how well someone could understand the views of others, which is an important skill in the investment world.  Over time, the surveys turned out to be quite revealing, sometimes in surprising ways.

Since then, I occasionally have used them with groups of investment professionals.  The most interesting result came when I asked whether gold acted as an inflation hedge.  Only a small percentage of the group being surveyed responded that it was.  But a very high percentage thought that others believed that gold did serve as a hedge.  That gap provided the basis for an examination of beliefs and how our perceptions of the opinions and views of others can be off kilter.

I bring this all up because of an article from MIT about getting “better wisdom from crowds.”MIT News | The subheading is, “MIT scholars produce new method of harvesting correct answers from groups.”  The bottom line is that researchers have found that asking a second question about what the most popular opinion will be, as I had done with my students, yields better results from the crowd than a single question would provide.  They call it the “surprisingly popular algorithm.”

The mechanics of the method revolve around the degree of difference between the answers that a group of people gave to a question and their prediction of the most popular answer within the group, as well as the direction of that difference.  While I’m sure that many more studies will be performed on this idea, the initial research shows impressive improvements in the wisdom to be gained from crowds by asking a simple additional question.  The  approach would seem to have many potential applications.

Of course, I had no idea of the apparent power of that tactic when I put those surveys together.  And I never used them with large enough groups to consider them statistically valid.  Nor did I analyze the results systematically.  I just found that the extra question added another dimension to the giving of opinions or predictions, and that enlightening discussions would ensue about the interplay between your views and those of others.

Based upon the MIT research, there’s a chance that my survey idea will itself become “surprisingly popular.”  (Albeit applied differently and with much more rigor.)  Whether used subjectively for insight into the ideas of a group or quantitatively for increased precision of predictions, it seems we can learn more than we think simply by asking people to assess the crowd’s beliefs in addition to providing their own.