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More efficiency than revelation, usually

When everyone agrees, prices get stupid. Studies have shown that crowd estimates can be surprisingly accurate on average -- but only when there is sufficient diversity of opinion. Market valuations are the same way: When you have a diversity of opinion, reasonable estimates prevail as outliers cancel each other out. But when there is a critical mass of one-sided opinion -- when an overwhelming majority shares the same general view -- you get serious mispricings.


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