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Renowned economist John Maynard Keynes once described investing as a beauty contest — “investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors.” In the same way, oracle systems that award submissions which are closest to the middle may incentivize participants to focus on what others think is the price, rather than simply provide assessments of the price based on fundamental value. Research has shown that these two quantities can certainly differ, and “beauty contest” behavior can impact the functioning of a market.
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