The oracle or the crowd? Experts versus the stock market in forecasting ceasefire success in the Levant
| Author | Maya Hadar,Naomi Bosler,Gerald Schneider |
| Date | 01 March 2017 |
| DOI | 10.1177/0022343316683437 |
| Published date | 01 March 2017 |
| Subject Matter | Research Articles |
The oracle or the crowd? Experts versus the
stock market in forecasting ceasefire success
in the Levant
Gerald Schneider, Maya Hadar & Naomi Bosler
University of Konstanz
Abstract
The forecasting literature has come to mistrust the predictions made by experts who forecast political events in mass
media. Distinguishing between judgements made by one or few individuals (‘oracles’) and assessments made by
larger groups (‘crowds’), we contrast journalistic predictions with forecasts stemming from the financial industry.
These two competing views were evaluated in a quantitative analysis of the ex ante success of 24 ceasefire agreements
in various conflicts which took place in the Levant from 1993 to 2014. Our analysis compares the forecasts appearing
in press commentaries (Haaretz,Jerusalem Post and New York Times) with the expectations that the Tel Aviv Stock
Exchange had about the stability of these cooperative efforts. To evaluate the predictions of these very dissimilar
sources, the effectiveness of the ceasefires was analysed through the number of violent events following the official
start of the truce. The analysis shows that the financial industry performs better than the media industry in the
comparative evaluation of ceasefire forecasts, but that neither source provides sufficiently accurate predictions. The
partial support for the crowd thesis is discussed in light of recent literature that resuscitates the usage of well-trained
experts for forecasting purposes, but warns against the dramatizing predictions of media pundits.
Keywords
conflict management, evaluation, expert forecasts, financial markets, Middle East, prediction
Introduction
Forecasting is a booming business (Sherden, 1997;
Bueno de Mesquita, 2009). It remains, however, both
practically and academically uncl ear who should fulfil
the everlasting wish of policymakers and the public to
know the future before it has happened. This article
contrasts predictions of political violence produced by
two important economic sectors – the media and the
financial industry. While the former provide their audi-
ence with forecasts about political developments through
commentaries and editorials, the latter generates predic-
tions through the valuation of politically sensitive assets.
Evidently, the judgements made by journalists and
stockbrokers on particular political developments feed
into each other. However, the appraisals of the two
industries differ in important ways. First, mass media
generate direct forecasts through their more or less expli-
cit predictions of how a certain process will evolve. The
financial industry, by contrast, only generates indirect
predictions through the assessments of how political
events affect the returns on particular investments. Sec-
ond, while the accuracy of a forecast directly impinges on
the income and possibly the job security of financial
traders, failed predictions will only exceptionally bring
havoc to the career of a media commentator. Third,
whereas the financial industry acts as an anonymous and
often fairly large group, editorial and commentaries are
typically written by a specific newsperson or by a small
team of journalists.
For the past decades, the social scientific literature has
debated the question of whether individual experts (‘ora-
cles’) or groups of laypeople(‘crowd’)providebetter
forecasts. As two non-fiction bestsellers show, both
Corresponding author:
Gerald.Schneider@uni-konstanz.de
Journal of Peace Research
2017, Vol. 54(2) 231–242
ªThe Author(s) 2017
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DOI: 10.1177/0022343316683437
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