People are willing to pay heavily for expert advice. Economists are consulted to tell us how the economy will change, stock analysts are paid large salaries to forecast the earnings of various companies, and political experts command large fees to tell our leaders what the future holds. The available evidence, however, implies that this money is poorly spent. But because few people pay attention to this evidence, I have come up with what I call the “seersucker theory”: “No matter how much evidence exists that seers do not exist, suckers will pay for the existence of seers.”

The seer-sucker theory: the value of experts in forecasting

One would expect experts to have reliable information for predicting change and to be able to utilize the information effectively. However, expertise beyond a minimal level is of little value in forecasting change. This conclusion is both surprising and useful, and its implication is clear: Don’t hire the best expert, hire the cheapest

This is not to say that experts have no value they can contribute in many ways. One particularly useful role of the expert seems to be in assessing a current situation. And although estimates of current status play an important role in forecasting, I will deal only with the role of expertise in forecasting change.

Value of Experts: The Evidence

Many studies have been done on the value of expertise in a given subject area. Most evidence comes from the field of finance, but studies have also been done in psychology, economics, medicine, sports, and sociology. The relationship of accuracy to expertise in a particular field has been measured in various ways – education, experience, reputation, previous success, and self-identification. Expertise, above a very low level, and accuracy are unrelated (Exhibit 1) and accuracy may even drop after a certain level. This minimal expertise can be obtained quickly and easily.

For example, in 1955, R. Taft surveyed 81 psychological studies that examined predictions made by experts and nonexperts. He concluded that nonpsychologists were more capable of making predictions about people’s attitudes and behavior.

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Via: ritholtz