Working Paper

On the Wisdom of Crowds (of Economists)

Abstract: We study the properties of macroeconomic survey forecast response averages as the number of survey respondents grows. Such averages are “portfolios” of forecasts. We characterize the speed and pattern of the gains from diversification as a function of portfolio size (the number of survey respondents) in both (1) the key real-world data-based environment of the U.S. Survey of Professional Forecasters, and (2) the theoretical model-based environment of equicorrelated forecast errors. We proceed by proposing and comparing various direct and model-based “crowd size signature plots,” which summarize the forecasting performance of k-average forecasts as a function of k, where k is the number of forecasts in the average. We then estimate the equicorrelation model for growth and inflation forecast errors by choosing model parameters to minimize the divergence between direct and model-based signature plots. The results indicate near-perfect equicorrelation model fit for both growth and inflation, which we explicate by showing analytically that, under very weak conditions, the direct and fitted equicorrelation model-based signature plots are identical at a particular model parameter configuration. That parameter configuration immediately suggests an analytic closed-form estimator for the direct signature plot, so that equicorrelation ultimately emerges as a device for convenient calculation of direct signature plots, rather than a separate “model” producing separate signature plots. Finally, we find that the gains from survey diversification are greater for inflation forecasts than for growth forecasts, and that they are largely exhausted with inclusion of 5–10 representative forecasters.

JEL Classification: C5; C8; E3; E6;

https://doi.org/10.21799/frbp.wp.2026.14

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2026-03-09

Number: 26-14