Crowd Wisdom
Crowd wisdom is the idea that aggregated forecasts from many independent participants can be more accurate than most individuals, especially when incentives and information diversity are strong.
Definition
Crowd wisdom describes how combining many forecasts can produce a strong estimate of reality. The key is aggregation: the crowd’s average can outperform many single forecasters, especially when participants have diverse information and make decisions independently.
Why it matters in prediction markets
Prediction markets are a structured way to aggregate beliefs. Prices can serve as implied probabilities, and the market price is often treated as market consensus.
When crowd wisdom works best
• Diverse information and viewpoints
• Independence (not everyone copying the same signal)
• Proper incentives (participants gain by being accurate)
• Enough liquidity and participation
When it fails
• Herding and social pressure
• Manipulation attempts in thin markets
• Shared blind spots (everyone using the same flawed model)
How to evaluate it
You can score market consensus like any other forecaster using Brier score and compare it to individuals via Brier skill score.