Sunday, October 14, 2007

Irrational exuberance

Stock markets are one of the most obvious examples of the "Wisdom of Crowds." The efficient market hypothesis holds that the current price of a stock reflects all available information, that any changes in a stock's price can only come from information that is unavailable, and that therefore no one can predict changes in a stock's price from available information. The most important piece of information, of course, is the current and future earnings of the stock-issuing firm.

In the 1990s, stock investors became markedly more optimistic about stocks, without really encountering much in the way of new information. Alan Greenspan famously described this a a period of "irrational exuberance". The crowd--not as wise as one would have hoped--succeeded in creating a stock bubble, which eventually popped.

In Wikipedia, one can encounter editors who are possessed with what may be described as "irrational exuberance." For example, an editor who engages in a months-long battle with other editors over something as trivial as the renaming of a page, writing hundreds of talk page comments, provoking other editors to respond with even more comments, and eventually winning, because the other editors have finally given up waging such a pointless battle.

Monomania can be rewarded in Wikipedia, in that someone absurdly devoted to a particular issue can get his way. Nevertheless, the monomaniac can only win if the issue has no devoted partisans on the other side, and in practice this means that he can win only if the issue is relatively trivial. And the monomaniac can only win for a short time. As soon as he grows tired of Wikipedia and leaves for other interests, his work will be reverted, since new editors will find it so out of tune with the prevailing view.

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