Wisdom of Crowd vs. Crowd Mentality

I found this very interesting video on Youtube!

Experiments reveal that if you ask a large number of people to guess, say the weight of an ox, the median of all the answers is very likely to be close to the actual result. If everyone tries to make a good guess, they will cancel out each other's errors. This is called wisdom of the crowd.

But when this creator tried to recreate this experiment and asked people to guess the number of candies in a jar, this time the median of all guesses was way off. The reason is that in the second experiment the people did not make independent guesses, but their predictions were influenced by others and that led to errors getting compounded.

This happens in the markets, doesn't it! Stock exchanges should allow price discovery through wisdom of the crowd. But the more people talk about an asset on news and social media, the larger the error in its valuation on both sides, up or down depending on what is being said.

We are living in echo chambers, thanks to social network algorithms. It's hard to avoid the noise and takes a lot of courage to think for yourself and trust your own common sense.