Harnessing the Wisdom of Crowds*

We empirically examine the impact of herding on the accuracy of consensus earnings forecasts from a crowd-based platform (Estimize.com). We monitor user information set by tracking user viewing activities and running experiments. We find that the more public information a user views, the less weight she puts on her private information. While this improves the accuracy of individual forecasts, it reduces the accuracy of the consensus forecast. The experiments convince Estimize.com to switch to a “blind” platform from November 2015. Overall, our findings suggest that the wisdom of crowds can be better harnessed by encouraging independent voices from the participants. * We thank Renee Adams, Kenneth Ahern (discussant), Qi Chen, Erik Eyster (discussant), Cary Frydman, Stefano DellaVigna, Itay Goldstein, Umit Gurun, David Hirshleifer, Harrison Hong, Byoung-Hyoun Hwang, Russell James (discussant), Petri Jylha (discussant), Peter Kelly, Tse-Chun Lin (discussant), Yin Luo, Davud Rostam-Afschar (discussant), Jacob Sagi (discussant), Johan Sulaeman (discussant), Adam Szeidl, Baolian Wang (discussant), Chishen Wei (discussant), Holly Yang (discussant), Liyan Yang, Ezra Zuckerman, as well as seminar participants at the Arizona State University, Cambridge University, Emory University, HEC-Paris, London School of Economics, Shanghai Advanced Institute of Finance, Tsinghua University, the University of Arizona, the University of Edinburgh, the University of Georgia, the University of Notre Dame, Villanova University, Washington University in St. Louis, the 2016 FSU SunTrust Beach Conference, the 2016 SFS Cavalcade, the 2016 ABFER 4th Annual Conference in Singapore, the 2016 CEIBS Finance Conference, the 2016 WFA, the 2016 CICF, the 2016 Early Career Behavioral Economics Conference, the NBER PRIT workshop, the 2016 Helsinki Finance Submit, the 2016 European Finance Association meeting, the 27th Annual Conference on Financial Economics and Accounting, the 2016 CalTech Behavioral Finance Junior Faculty Conference, the 2017 Utah Winter Finance Conference, and the 2017 Finance Down Under Conference, the Second Annual News and Financial Markets Conference at Columbia Business School for their helpful comments and suggestions. We thank Leigh Drogen and Josh Dulberger from Estimize for their generous support. †University of Notre Dame, Mendoza College of Business, Notre Dame, IN, 46556, USA. Email: [email protected] ‡Washington University in St. Louis, Olin Business School, Simon Hall, St. Louis, MO 63130-4899, USA. Email: [email protected] “The more influence we exert on each other, the more likely it is that we will believe the same things and make the same mistakes. That means it’s possible that we could become individually smarter but collectively dumber.” James Surowiecki, The Wisdom of Crowds.