There are limits to the value from a crowd of economists

Is there a wisdom of crowds effect for macro forecasts? The answer is yes, per the new paper "On the wisdom of crowds (of economists)", but the impact of looking at more economists diminishes quickly. Whether the MSE, the change in the MSE from adding another economist, or looking at the relative improvement, the answer is all the same.  Check or average a few economists but the marginal impact of looking at a large group is minimal. Most economists seem to come up with similar forecasts which is not surprising. No economist wants to be an outlier relative to their peers, and most economists use the same models or frameworks which means they are likely to derive the same result. There is no value from looking at a big crowd of economists on the big macro questions. 

Robo-advisors - keep the rules simple

 

More investors are using robo-advisors to get investment advice. Relative to doing it yourself, the robo-advisor may be an improvement. Is this better than a financial advisor is a different question and remains to be answered. We know that the robo-advisor is cheaper, so the investor is receiving net savings versus the standard fees that are usually charged. 

Do you get more sophisticated advice? A recent study shows that the advice given is rather simple and focuses on only a few factors - what is your horizon, goal, and loss reaction are the top three. These simple rules are driven a lot of client money and will tie the movement of savings to a limited set of variables. See "What drives robo-advice?"

Data as a hedge fund edge

 “Simple models and a lot of data trump more elaborate models based on less data....

We don't have better algorithms; we just have more data.” Peter Norvig.

There are various types of edges that will generate extra return. One of the most important in the gathering and using of information that others don't have or do not use efficiently. Of course, there is public information that many investors have, but there is value-added through: 1. transforming the data, 2. mixing the data with other data. 3. getting the data and processing faster. Data can be delivered systematically which requires the systematic processing of the data. There is a desire for using more sophisticate techniques with analyzing data yet keeping it simple may be preferred. It is easier to tell the narrative, and it is easy to see where something may be going wrong.

Time is a scarce resource

Mr. Gilder noted, “The scarcest resource is time, which always becomes scarce as other things become abundant. It is human genius that transcends the scarcity of time.” That’s economic productivity in a nutshell. - Andy Kessler WSJ 3/31/25

A variation on the time value of money, but we have to value time, and it becomes more valuable when there are more conflicts or things trying to grab our attention and time. Depending on the activity, we want time to speed up or slowdown, but unfortunately, we do not often do a good job of putting a price on time.