Wisdom of crowds
Posted by disappointmentzone on 31 July 2006
James Surowiecki writes the Financial Page column for the New Yorker and is an economist by training. A couple of years ago he wrote a book called The Wisdom of Crowds, the premise of which is that crowds are, on average, quiet smart, oftentimes smarter than any individual or small group of highly intelligent people, and that we (citizens, businesses, governments, etc.) don’t tap into this enormous asset as often as we should. (There is a lot more to say about the book; it’s worth reading)
One of the best aggregators of knowledge is the market. A good example is the Iowa Electronic Market, which often outperforms polling data in national and local elections. (There is a lot to say about the IEM as well) If you want to know who will be President in 2008 you could do a lot worse than follow the IEM market.
But what about sports? There probably is not a deeper collective pool of knowledge in the United States than sports. Wouldn’t it be great if we could somehow harness the collective intelligence of the legions of dedicated and knowledgeable sports fans across the country? Well, now there is PROTRADE, an online market for sports. From the About Us page:
PROTRADE uses live market buy/sell activity to establish a predictive market of athletes and has assembled a unique team of MIT statisticians, economists and leading sports figures to develop a patent-pending valuation engine to quantify on-field performance and assess an athlete’s contribution to winning.
I don’t know how long Protrade has been around nor do I know of any research on it. I’m certain there are smarter people than I hard at work figuring out just how accurate Protrade is as a predictive market. If you know of their work please let me know. In any event, SI.com has recently started to run a Protrade “Moneyball Runs” column in which certain MLB players and their respective moneyball salaries are listed. Moneyball salaries are what the player would be paid if salary were tied to current performance. Being linked from SI.com should certainly help funnel people to the site and, in turn, help the Protrade markets become increasingly more accurate. It’s the wisdom of crowds.
To tie this back to Cleveland sports, the most underpaid baseball player is Travis Hafner, whose moneyball salary is a round $20,057,733 against his actual salary of $2.7 million. If you want to pick up Travis Hafner for your portfolio his market price is $108.54 per share. His moneyball price is $120.90. Ronnie Belliard is trading at $16.09 and Hector Luna is trading at $9.87. Though Belliard is worth $6 more than Luna, Belliard’s moneyball price is only $2.10. Belliard is a strong sell, if you can find anyone interested in taking him off your hands. Luna’s moneyball price, meanwhile, is $20.11. He’s a strong buy. Kind of like Microsoft in the mid 1980s. Or so Cleveland Indians fans hope.