203 - The 'Wisdom of the Crowds' and Public Policy

DNB Working Papers
Publicatiedatum 25 februari 2009

Surowiecki (2004) argues that collective predictions are better than individual predictions and calls that the Wisdom of the Crowds. We use an analytical information model to demonstrate and explain this. Then we see how these two predictions are affected by better public information and show that while individual predictions always improve, collective ones do not. A social planner that relies on collective predictions to form policy may erroneously refrain from providing better information. We use two examples to show where this might be applicable.

Keywords: Public information, social planner, ‘expert’ vs ‘lay’ crowds.

JEL codes: D82, E52,E58.