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Journal Articles Journal of Economic Interaction and Coordination Year : 2020

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

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.
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hal-04317258 , version 1 (01-12-2023)

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Kevin Primicerio, Damien Challet, Stanislao Gualdi. Collective rationality and functional wisdom of the crowd in far-from-rational institutional investors. Journal of Economic Interaction and Coordination, 2020, 16 (1), pp.153-171. ⟨10.1007/s11403-020-00288-0⟩. ⟨hal-04317258⟩
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