Course Description

Wisdom of Crowds: A theory that a large number of individuals (a crowd), each with limited information, forecasts better than an expert, with more information than any single individual.

The course will analyze different types of information markets, including prediction markets, polls and surveys, auctions, and existing securities markets. Students will analyze strengths and weaknesses of each approach relative to traditional expert opinion. Students will consider applications of information markets, such as risk management, crowdfunding and auction bidding strategies.

General Information

Course Meetings: Tuesday and Thursday from 6:30 to 8:30 pm in Room Aresty (AGB) 331.

Office: Room 521B, Jenkins School of Business.

Office hours: Wednesdays from 10-12 and 3-5 (Dave is almost always around during business hours, but try to come during office hours if you can).

Contacts: Dave can be contacted via phone (8x3725) or email (dkelly@miami.edu).

Web Site: Dave has established a website (http://moya.bus.miami.edu/~dkelly/teach/eco698/index.html) for this course. At this site, you can download or view course material (notes, homeworks, etc.), grades, and a continuously updated syllabus.

Final Exam: Thursday, December 6, room Aresty (AGB) 331, 6:30 - 8:30 pm.

Prerequisites

Textbooks

Grades

• 4 Homeworks 33% (due dates: October 25, November 1, November 15, November 29)
• First Quiz (November 8) 33%
• Final Quiz (December 6) 34%

You can now access your grades on line using Blackboard HERE!

Additional Notes

• Attendence is required and very important for this class. All exam material comes from class notes, and not all class notes are available in the book. Dr. Dave will provide detailed notes, but many in-class examples of the types of problems on quizzes are not provided. Smart students will attend every class and take detailed notes on the in-class examples, and will therefore find that the homeworks and quizzes are straightforward.
• There is a homework, quiz, or review sheet due every week. Each homework is worth 8.3%, about a letter grade. Homeworks are due at the beginning of each class, in class. Showing up 20 minutes late because you didn't finish the homework on time is not acceptable. Putting a homework in my mailbox, under my door, etc. is also not acceptable. Emailing homework is only acceptable if done in advance. Only in the most dire emergencies can a student be excused from turning in a homework on time. Even in dire emergencies Dave does not allow the homework to be turned in late, but will instead weight the final more. Students must let Dave know of their dire emergency before the homework is due or else a zero is automatically recorded. Finally, the homeworks sometimes demonstrate how the concepts used in class are applied in the "real world." Because the real world is complicated, the homeworks can be long. Do not wait until the last minute to start the homeworks.
• The quizzes are November 8 and December 6. Now is the time to mark your calandars. Only in the most dire emergencies can a student not take a quiz at the scheduled time. Even in dire emergencies, Dave does not allow a make-up, but instead counts the final double. STUDENTS MUST LET DAVE KNOW OF THEIR DIRE EMERGENCY BEFORE CLASS ON THE DAY OF THE QUIZ OR ELSE A ZERO IS AUTOMATICALLY RECORDED. LEAVING ME A MESSAGE OR EMAIL AND NOT SHOWING UP PUTS YOU AT GRAVE RISK OF YOUR DIRE EMERGENCY NOT BEING APPROVED, IN WHICH CASE A ZERO IS AUTOMATICALLY RECORDED.
• Computers and Ipads are not allowed in class. 99% of what you need to write down in your notes is either math or graphs. Most definitions, etc. are in the notes Dave provides.
• Phones, texting, portable games, X-boxes, Wiis, etc. are not allowed, as seeing students text breaks Dave's mental flow. WARNING: Dave can see you text even when done in the back of class or under the table.
• With six week courses, it is important to keep up. Missing one class is equivalent to missing a week's worth of undergraduate classes.
• What they say about Dave on Rate My Professor:
  • "Can be an a-- if you procrastinate."
  • "God help you if you don't go to class."

Course Outline

1. Introduction (October 16-18).
1. The wisdom of crowds
2. Types of unknowns.
3. Sources of Information.
4. Applications.
5. Auctions.
2. Theory.
1. Basic Framework (October 18 - 23).
2. Information events.
3. Signals.
4. Law of large numbers.
5. Independence.
6. HOMEWORK 1 DUE OCTOBER 25.
3. Polls and Surveys (October 23- 25).
1. Theory/convergence
2. Practical issues
1. Response rate.
2. Framing.
3. Administration.
4. Believable Scenarios.
3. Information Cascades.
4. Expert Opinion (October 25 - November 6).
1. Theory (October 30-November 1).
2. Biased experts.
1. Game theory refresher.
2. Biased expert game.
3. Games with exogenous randomness.
4. Acquisition game.
5. HOMEWORK 2 DUE NOVEMBER 1.
3. Type biased experts.
   1. Bayes-Nash equilibrium.
   2. Type biased expert game.
5. Securities Markets (November 6-8).
1. Theory
2. Confounding events
3. Game with liquidity traders.
4. Game with multiple informed traders.
5. Mergers application.
6. FIRST QUIZ NOVEMBER 8.
7. Evidence.
6. Prediction Markets (November 8-13).
1. Basic framework.
2. Contract design.
3. Trading rules.
4. THIRD HOMEWORK DUE NOVEMBER 15.
5. Important Considerations.
1. Manipulation.
2. Risk aversion.
3. Public image considerations.
4. Acting on information.
7. Application: Risk management (November 15).
1. Basic framework.
2. Value at risk.
3. Unknown unknowns.
4. Applying the wisdom of crowds.
8. Application: crowdfunding (November 27).
9. Auctions (November 27-29).
   1. Auction types: English, Dutch, sealed bid, etc.
   2. Bidding strategies.
   3. Independent private values and revenue equivalence.
   4. Common values and the winner's curse.
   5. Search engine auctions.
   6. HOMEWORK 4 DUE NOVEMBER 29

Homeworks, quizzes, review sheets, and solutions.

Study Materials.

Class notes.

Case Studies and Examples.