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Hello and welcome to more or less with me Tim Halford following the statistical star to a numerical epiphany.

This week we're going to turn our attention to a parable about the financial markets,

a parable about an ox.

It's a story that starts with a trip that the British social scientist and statistician,

Francis Goulton took to a country fair back in 1906.

It's told by James Sirawiki who recounts the story in his book The Wisdom of Crowds.

As he was walking through the fair that day, he came across this contest.

An ox had been placed on display and the crowd around the ox was basically placing wagers on the weight of the ox.

There was actually a huge crowd there that day, something like 800 people.

And what's important about this crowd is that it was a relatively diverse crowd.

While many of the people in the crowd were butchers and farmers and probably had some skill in being able to guess the weight of something like an ox.

There were also a lot of people in the crowd who were not at least on the surface, experts at all.

So Goulton, as he was watching this contest, it struck him that this made an interesting natural experiment.

Goulton took all the tickets and ran some statistical experiments on them.

With his elitist background, he assumed the average of the guesses would be woefully wrong, but this wasn't the case.

The crowded guess that the ox would weigh 1197 pounds.

And when all was said and done, the ox ended up weighing 1198 pounds.

So in other words, the crowd's judgment was essentially perfect.

It was actually better than any one person in the crowd.

...