Comments on: The Madness of Crowds http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/ Tue, 2 Dec 2008 01:16:14 +0000 http://wordpress.org/?v=2.3 By: Content is Not King: The Emperor Still Has No Clothes http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-231093 Content is Not King: The Emperor Still Has No Clothes Mon, 14 Jul 2008 15:49:50 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-231093 [...] break the so-called blogging rules, push the envelope & don’t feel pressure to follow the mad crowd. Make mistakes. The only king you need obey is yourself. (See The Zen Blogger’s Manifesto) I [...] […] break the so-called blogging rules, push the envelope & don’t feel pressure to follow the mad crowd. Make mistakes. The only king you need obey is yourself. (See The Zen Blogger’s Manifesto) I […]

]]> By: 10 Reasons Why Someone May Stop Reading Your Blog at sellsius° real estate blog http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-23271 10 Reasons Why Someone May Stop Reading Your Blog at sellsius° real estate blog Mon, 04 Dec 2006 19:02:35 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-23271 [...] What are your reasons for no longer reading a blog (or never reading it regularly in the first place)? What makes you want to visit your favorite blogs?  Come on, pass the secret sauce. Related posts: The Madness of Crowds The Emperor Has No Clothes: Content is Not King. Listen to this podcast [...] […] What are your reasons for no longer reading a blog (or never reading it regularly in the first place)? What makes you want to visit your favorite blogs?  Come on, pass the secret sauce. Related posts: The Madness of Crowds The Emperor Has No Clothes: Content is Not King. Listen to this podcast […]

]]> By: The Emperor Has No Clothes: Content Is Not King at sellsius° real estate blog http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15747 The Emperor Has No Clothes: Content Is Not King at sellsius° real estate blog Wed, 11 Oct 2006 05:05:17 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15747 [...] So free yourself, break some so-called blogging rules, push the envelope & don’t feel pressure to follow the mad crowd. Make mistakes. The only king you need obey is yourself. [...] […] So free yourself, break some so-called blogging rules, push the envelope & don’t feel pressure to follow the mad crowd. Make mistakes. The only king you need obey is yourself. […]

]]> By: sellsius° http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15639 sellsius° Tue, 10 Oct 2006 05:44:36 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15639 I do not say the proposition is dubious. As the author admits, it requires certain key factors (your LDDI). In my opinion, these key factors are not present in every group dynamic. Thus, the crowd is just as likely to be mad as wise. I do not say the proposition is dubious. As the author admits, it requires certain key factors (your LDDI). In my opinion, these key factors are not present in every group dynamic. Thus, the crowd is just as likely to be mad as wise.

]]> By: sellsius° http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15636 sellsius° Tue, 10 Oct 2006 05:34:20 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15636 If the realtors were bullish and the market did rebound, the realtors would win. If the homeowners were less bullish and the market continued to fall, the homeowners would win. I don't see the wisdom here-----To me, the market decided the winner, not the group. In hindsight, one group can be said to have predicted correctly but I don't think that proves that a collective wisdom was at work to put either in the correct camp. The reason I say this is because the market can be affected by many forces, including a natural disaster. This spoiler, or a similar one, cannot bestow wisdom on the group's prediction. I know nothing about Google's search mechanism so can't disagree or agree. Re: Knowing the median now. The median is only a middle number. One will usually buy above or below the median. How much? Who can tell? So, if the median price for homes is $250,000 & you showed me a house for $300,000 would you advise me not to buy it because it was $50,000 above the median? Likewise, should I put my house up for sale at $300K if the median is $250K? Knowing the number in the future. When will you know if the predicted median of $250,000 is correct? Or the margin of error? Don't you have to wait for the future event? Or will you feel comfortable advising me now? My prediction on how to make a small fortune in the stock market---- start with a large fortune. :) If the realtors were bullish and the market did rebound, the realtors would win.
If the homeowners were less bullish and the market continued to fall, the homeowners would win.
I don’t see the wisdom here—–To me, the market decided the winner, not the group. In hindsight, one group can be said to have predicted correctly but I don’t think that proves that a collective wisdom was at work to put either in the correct camp.
The reason I say this is because the market can be affected by many forces, including a natural disaster. This spoiler, or a similar one, cannot bestow wisdom on the group’s prediction.

I know nothing about Google’s search mechanism so can’t disagree or agree.

Re: Knowing the median now.
The median is only a middle number. One will usually buy above or below the median. How much? Who can tell? So, if the median price for homes is $250,000 & you showed me a house for $300,000 would you advise me not to buy it because it was $50,000 above the median? Likewise, should I put my house up for sale at $300K if the median is $250K?

Knowing the number in the future.
When will you know if the predicted median of $250,000 is correct? Or the margin of error? Don’t you have to wait for the future event? Or will you feel comfortable advising me now?

My prediction on how to make a small fortune in the stock market—-
start with a large fortune. :)

]]> By: Kevin http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15635 Kevin Tue, 10 Oct 2006 04:20:13 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15635 Who was it again who said, "The problem with the future is that it's so difficult to predict"? :) Responding to: <i>I just don’t know whether the realtor consensus would be bullish & whether that would matter if indeed the market did rebound—it’s more a lucky guess on the future market isn’t it?</i> That's the whole point of a prediction market -- it tells you the overall consensus of the LDDI group. Any individual's prediction is indeed a guess, and that guess is called "lucky" if that individual's prediction happens to be near to the truth. Collectivize those opinions, however, and you end up with something that is really a lot more than a guess -- in fact, it's the "Wisdom" that Surowiecki refers to in his book. There's an analogy to Google here. My understanding is that a lot of G's search algorithm is based on the number and quality of the links pointing to a certain page. If an LDDI group of people collectively point more frequently to page X than to page Y in reference to a particular query, then, all other things being equal, page X will outrank page Y -- another example of "Wisdom." Responding to: <i>But what value is knowing the median value now or a year from now? How would that knowledge help a buyer or realtor?</i> I think it would be immensely valuable. If I were thinking of buying or selling a home, or I were advising a client thinking of buying or selling a home, that LDDI prediction would be another data point to consider in trying to figure out the direction of the market. I know the whole "Wisdom of the Crowds" thing sounds dubious, but, properly formed, it does appear that LDDI predictions can be pretty good. Who was it again who said, “The problem with the future is that it’s so difficult to predict”? :)

Responding to:
I just don’t know whether the realtor consensus would be bullish & whether that would matter if indeed the market did rebound—it’s more a lucky guess on the future market isn’t it?

That’s the whole point of a prediction market — it tells you the overall consensus of the LDDI group. Any individual’s prediction is indeed a guess, and that guess is called “lucky” if that individual’s prediction happens to be near to the truth. Collectivize those opinions, however, and you end up with something that is really a lot more than a guess — in fact, it’s the “Wisdom” that Surowiecki refers to in his book.

There’s an analogy to Google here. My understanding is that a lot of G’s search algorithm is based on the number and quality of the links pointing to a certain page. If an LDDI group of people collectively point more frequently to page X than to page Y in reference to a particular query, then, all other things being equal, page X will outrank page Y — another example of “Wisdom.”

Responding to:
But what value is knowing the median value now or a year from now? How would that knowledge help a buyer or realtor?

I think it would be immensely valuable. If I were thinking of buying or selling a home, or I were advising a client thinking of buying or selling a home, that LDDI prediction would be another data point to consider in trying to figure out the direction of the market.

I know the whole “Wisdom of the Crowds” thing sounds dubious, but, properly formed, it does appear that LDDI predictions can be pretty good.

]]> By: sellsius° http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15634 sellsius° Tue, 10 Oct 2006 03:22:43 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15634 Now those are reasonable experiments. Excellent choice of groups. Let's also throw zillow in for educational purposes. How do you suppose zillow would do? I'd love to see that outcome. I'd agree the LDDI homeowers would give the realtors a good run but I'd bet the local Realtors would best them on the value of a local home, just by virtue of experience in selling in the current market. It would not surprise me if Zillow came in dead last. And that would be further proof that they are not the best starting point. I always said that asking a neighbor was as good a starting point as zillow. As to median home value in area X over 1 year, I don't know. I just don't know whether the realtor consensus would be bullish & whether that would matter if indeed the market did rebound---it's more a lucky guess on the future market isn't it? But what value is knowing the median value now or a year from now? How would that knowledge help a buyer or realtor? Since future events are affected by many factors, I could not say homeowners would better the bubblelistas, despite the bias. The bubble meisters fit the classic mold of a mad crowd, but in predicting future events none of that matters-----any vote on the future of a real estate market is a pure guess to me. Hey, a broken watch is right twice a day. I am not a believer in any group's ability to accurately predict the future since there are factors at work which are beyond the control or knowledge of anyone. A natural disaster, terrorist attack, war, whatever, is the ultimate spoiler to any groups' educated guess. Now those are reasonable experiments. Excellent choice of groups. Let’s also throw zillow in for educational purposes. How do you suppose zillow would do? I’d love to see that outcome.

I’d agree the LDDI homeowers would give the realtors a good run but I’d bet the local Realtors would best them on the value of a local home, just by virtue of experience in selling in the current market. It would not surprise me if Zillow came in dead last. And that would be further proof that they are not the best starting point. I always said that asking a neighbor was as good a starting point as zillow.

As to median home value in area X over 1 year, I don’t know. I just don’t know whether the realtor consensus would be bullish & whether that would matter if indeed the market did rebound—it’s more a lucky guess on the future market isn’t it? But what value is knowing the median value now or a year from now? How would that knowledge help a buyer or realtor?

Since future events are affected by many factors, I could not say homeowners would better the bubblelistas, despite the bias. The bubble meisters fit the classic mold of a mad crowd, but in predicting future events none of that matters—–any vote on the future of a real estate market is a pure guess to me. Hey, a broken watch is right twice a day.

I am not a believer in any group’s ability to accurately predict the future since there are factors at work which are beyond the control or knowledge of anyone. A natural disaster, terrorist attack, war, whatever, is the ultimate spoiler to any groups’ educated guess.

]]> By: Kevin Boer http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15630 Kevin Boer Tue, 10 Oct 2006 02:39:52 +0000 http://blog.sellsiusrealestate.com/studies/a-confederacy-of-dunces-the-madness-of-crowds/2006/10/09/#comment-15630 Given the stigma of the word "Crowds," perhaps a better (albeit unwiedly) title for Surowiecki's book would have been "Collecting, Analyzing, and Summarizing the Collective Predictive Wisdom of Large, Diverse, Decentralized and Independent (LDDI) Groups of People With At Least Some Knowledge of the Subject Matter, and Circumstances Under Which Such Wisdom May Turn into Madness." :) I'd certainly agree with you that the collective wisdom of in-town Realtors about the price of a local home will usually trump that of out-of-towners. To be provocative and truly test Surowiecki's theories, how about this experiment: For that same local home, let's pit the collective wisdom of an LDDI group of local Realtors vs. that of an LDDI group of local homeowners. At the risk of being heretical, I'd posit the homeowners would give the Realtors a run for their money. To be even more provocative, how about this one: Pit the Realtors against the homeowners, but this time the prediction we're looking for is the median price of homes in area X in one year. In this case, I'd bet the homeowners would be more accurate. Why? It has to do with the first "D" in "LDDI." Homeowners probably have a higher diversity of opinion about the future of real estate than do Realtors, who tend, understandably, towards the bullish side. One last experiment: Homeowners vs. the regular readers of a "Real Estate Bubble" blog about prices in area X in one year. Hands down, the homeowners would win -- again, because they would have more diversity of opinions than the typical doom-and-gloom of the Bubblistas. Given the stigma of the word “Crowds,” perhaps a better (albeit unwiedly) title for Surowiecki’s book would have been “Collecting, Analyzing, and Summarizing the Collective Predictive Wisdom of Large, Diverse, Decentralized and Independent (LDDI) Groups of People With At Least Some Knowledge of the Subject Matter, and Circumstances Under Which Such Wisdom May Turn into Madness.” :)

I’d certainly agree with you that the collective wisdom of in-town Realtors about the price of a local home will usually trump that of out-of-towners.

To be provocative and truly test Surowiecki’s theories, how about this experiment: For that same local home, let’s pit the collective wisdom of an LDDI group of local Realtors vs. that of an LDDI group of local homeowners. At the risk of being heretical, I’d posit the homeowners would give the Realtors a run for their money.

To be even more provocative, how about this one: Pit the Realtors against the homeowners, but this time the prediction we’re looking for is the median price of homes in area X in one year. In this case, I’d bet the homeowners would be more accurate. Why? It has to do with the first “D” in “LDDI.” Homeowners probably have a higher diversity of opinion about the future of real estate than do Realtors, who tend, understandably, towards the bullish side.

One last experiment: Homeowners vs. the regular readers of a “Real Estate Bubble” blog about prices in area X in one year. Hands down, the homeowners would win — again, because they would have more diversity of opinions than the typical doom-and-gloom of the Bubblistas.

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