Sunday, January 23, 2011

Planet Money's "Ranking Cute Animals" Experiment

Planet Money--consistently one of the most thoughtful sources of news and analysis on the economy--recently conducted a clever experiment.  Inspired by Keynes' quote that the stock market is like a beauty pageant in which judges try to determine who everyone else will think is prettiest (not who they themselves think is prettiest.)   

Using photos of three cute animals (a kitten, a polar bear, and a loris), participants were asked to select the cutest one.  And then they were asked to select which one other participants would think is the cutest.  While only 50% thought the kitten was cutest, over 75% thought that others would think the kitten was cutest.  And as played out in the market, these are predictions that can make themselves come true (and reward a supposed widely appealing mediocrity over excellence). 

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