In 1906, Sir Francis Galton came upon a contest in a livestock fair where any person could guess the weight of an ox and the winner would take home the ox.
Some of these contestants were what you could call experts - farmers, butchers and the like. Others were less experienced. He found that while the range of guesses was wide apart and no one could guess the right weight, the mean was extremely close.
This is a phenomena that has been observed and noted by various people - how groups of diverse individuals with varying degrees of knowledge and understanding of a field can still outguess experts.
It explains diverse phenomena such as the higher than expected accuracy rate of the ask the audience lifeline in Who wants to be a millionaire and the reason why markets function efficiently with prices close to the implied values in most cases.
The basis of this phenomenon lies in the fact that when a large heterogeneous group of people use varying methods to arrive at a conclusion and those methods are uncorrelated, the errors cancel themselves out.
This is a very powerful concept and has found homes in various fields industries the military and the financial sector, but it stands an equal chance of being overused or misused by being shoehorned where it does not fit.
This brings me to the point of this post - if several stock market experts state their expectations for the index level for the next year, and a pool taken from site readers also gives an answer for the same, can these numbers be trusted?
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