“It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.” (Keynes, General Theory of Employment Interest and Money, 1936).For anyone unfamiliar with the contest, hang around until the EIA releases their natural gas storage numbers later this morning.
The object of the exercise is not to predict what the figures will be, and not even to guess what the competition thinks the numbers will be but rather what the competition's reaction to the release will be.
Kind of a second derivative thing.
From Quartz:
Market bubbles are driven by the impulse to predict each other’s behavior, says new research
Five years on from Lehman Brothers’s collapse and “where did it all go wrong?” analysis is all the rage. Answers have varied: poor regulation, malicious bankers, dozy politicians, greedy homeowners, and so on.+But what if the answer was in our minds? New research suggests that market bubbles are in fact driven by a biological impulse to try to predict how others behave.+Any analysis of the global financial crisis would be incomplete without a thorough understanding of the asset bubble that preceded it. In the run up to 2008, property prices hit dizzying levels, construction boomed and the stock market reached a record high.+Economists have long picked over the causes of bubbles. But researchers at the California Institute of Technology wanted to know whether neuroscience could tell us anything about why so many people kept inflating the bubble to irrational levels.+Benedetto De Martino, now at Royal Holloway University of London, is one of the study’s authors. “For a long time,” he said, “the study of how people actually made decisions was not considered important.”“It was always assumed people were rational and wanted the best for themselves. But this didn’t match with our observations of how people actually acted in many situations. Now, thanks to advances in neuroscience, we can begin to understand exactly why people behave as they do.”+
This new field, known as neuroeconomics, combines traditional economics with insights on how the brain works. To conduct the research, De Martino, a neuroscientist, teamed up with finance professor Peter Bossaerts and Colin Camerer, a behavioral economist. Collaboration between these academic disciplines was key.+The study asked participants to make trades within an experimental bubble environment, where asset prices were higher than underlying values. While making these trades, they were hooked up to scans which detected the flow of blood to certain parts of the brain.They found two areas of the brain’s frontal cortex were particularly active during bubble markets: the area which processes value judgements, and that which looks at social signals and the motives of other people....MORE+
