Beating the Crowd

27 Apr, 2025 Suppose you are participating in an auction for a box. Nobody knows exactly what is in the box, but they are bidding on it for various reasons; some think they can make money, some might have sentimental reasons, and others might just be having fun. You yourself are trying to make money. You asked around a bit, did some research, and think that you have a good estimate for the value of the box. You think it’s worth $10,000 and decide to bid $9,000. You won. How do you feel? Great? You made money (on average, you think)! But thinking about it a little more gives you pause. The rest of the world bid for this box and your bid beat all of them. Every single person who did their own research, and presumably thought just as hard as you, decided to bid less. Could it really be that you know more than all of them? You open the box, and find a $100 bill inside. It’s a bit of a contrived example, but it illustrates the point nonetheless. You might have had a reasonable confidenc ... Read full article.