Against the ‘Wisdom of Crowds’: The Investment Performance of Contrarian Funds

Abstract

In an article published in the Financial Analysts Journal (Treynor, 1987), Jack Treynor wrote about a series of “bean jar” experiments he conducted with students in his investments courses at the University of Southern California. In the first set of experiments, he asked students to independently estimate the number of beans contained in a full jar. While most students’ individual estimates missed the actual number by a wide margin, surprisingly, the average estimates were pretty close to being correct. In the second set of experiments, he first provided students with advice on properties of the jar, such as the air space at the top of the jar, and materials of the jar. While such information supposedly could help improve the accuracy of students’ estimates, the resulting average estimates, alas, had much larger errors than those from the first set of experiments. It seems his advice did nothing more than cause common errors among students!