Collective rationality and functional wisdom of the crowd in far-from-rational institutional investors

Kevin Primicerio, Damien Challet and Stanislao Gualdi
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Kevin Primicerio: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay
Stanislao Gualdi: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay

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Abstract: The average portfolio structure of institutional investors is shown to have properties which account for transaction costs in an optimal way. This implies that financial institutions unknowingly display collective rationality, or Wisdom of the Crowd. Individual deviations from the rational benchmark are ample, which illustrates that system-wide rationality does not need nearly rational individuals. Finally we discuss the importance of accounting for constraints when assessing the presence of Wisdom of the Crowd.

Date: 2020-07-08
Note: View the original document on HAL open archive server: https://hal.science/hal-04317258v1
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Published in Journal of Economic Interaction and Coordination, 2020, 16 (1), pp.153-171. ⟨10.1007/s11403-020-00288-0⟩

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Journal Article: Collective rationality and functional wisdom of the crowd in far-from-rational institutional investors (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04317258

DOI: 10.1007/s11403-020-00288-0

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