The Wisdom of Crowds

Wikipedia

Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, first published in 2004, is a book written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group. The book presents numerous case studies and anecdotes to illustrate its argument, and touches on several fields, primarily economics and psychology.

The opening anecdote relates Francis Galton's surprise that the crowd at a county fair accurately guessed the weight of an ox when their individual guesses were averaged (the average was closer to the ox's true weight than the estimates of most crowd members, and also closer than any of the separate estimates made by cattle experts).

The book relates to diverse collections of independently-deciding individuals, rather than crowd psychology as traditionally understood. There are parallels with statistical sampling theory—a diverse collection of independently-deciding individuals is likely to be more representative of the universe of possible outcomes, thereby producing a better prediction.

Its title is an allusion to Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds, published in 1843.

Types of Crowd Wisdom

He breaks down the advantages he sees in disorganized decisions into three main types, which he classifies as:

Cognition: Market judgement, which he argues can be much faster, more reliable, and less subject to political forces than the deliberations of experts, or expert committees

Coordination of behavior, such as optimizing the utilization of a popular restaurant, or not colliding in moving traffic flows. The book is replete with examples from experimental economics, but this section relies more on naturally occurring experiments such as pedestrians optimizing the pavement flow, or the extent of crowding in popular restaurants. He examines how common understanding within a culture allows remarkably accurate judgments about specific reactions of other members of the culture.

Cooperation: How groups of people can form networks of trust without a central system controlling their behavior or directly enforcing their compliance. This section is especially pro-free market.

Four Elements Required to Form a Wise Crowd

Not all crowds (groups) are wise. Consider, for example, mobs or crazed investors in a stock market bubble. Refer to Failures of crowd intelligence for more examples of unwise crowds. What key criteria separate wise crowds from irrational ones?

Diversity of opinion: Each person should have private information even if it's just an eccentric interpretation of the known facts.

Independence: People's opinions aren't determined by the opinions of those around them.

Decentralization: People are able to specialize and draw on local knowledge.

Aggregation: Some mechanism exists for turning private judgments into a collective decision.

Failures of crowd intelligence

Surowiecki studies situations (such as rational bubbles) in which the crowd produces very bad judgment, and argues that in these types of situations their cognition or cooperation failed because (in one way or another) the members of the crowd were too conscious of the opinions of others and began to emulate each other and conform rather than think differently. Although he gives experimental details of crowds collectively swayed by a persuasive speaker, he says that the main reason that groups of people intellectually conform is that the system for making decisions has a systematic flaw.

Surowiecki asserts that what happens when the decision making environment is not set up to accept the crowd, is that the benefits of individual judgments and private information are lost, and that the crowd can only do as well as its smartest member, rather than perform better (as he shows is otherwise possible). Detailed case histories of such failures include:

Too centralized: The Columbia shuttle disaster, which he blames on a hierarchical NASA management bureaucracy that was totally closed to the wisdom of low-level engineers.

Too divided: The U.S. Intelligence community failed to prevent the September 11, 2001 attacks partly because information held by one subdivision was not accessible by another. Surowiecki's argument is that crowds (of intelligence analysts in this case) work best when they choose for themselves what to work on and what information they need. (He cites the SARS-virus isolation as an example in which the free flow of data enabled laboratories around the world to coordinate research without a central point of control.)

Too imitative: Where choices are visible and made in sequence, an "information cascade" can form in which only the first few decision makers gain anything by contemplating the choices available: once this has happened it is more efficient for everyone else to simply copy those around them.

Is It Possible to Be Too Connected?

Surowiecki spoke on Independent Individuals and Wise Crowds, or Is It Possible to Be Too Connected?.

The question for all of us is, how can you have interaction without information cascades, without losing the independence that's such a key factor in group intelligence?

He recommends:

Keep your ties loose

Keep yourself exposed to as much information as possible

Tim O'Reilly[1] and others discuss the success of Google, wikis, blogging and Web 2.0 in the context of the wisdom of crowds.

Applications

Surowiecki is a very strong advocate of the benefits of decision markets, and regrets the failure of DARPA's controversial Policy Analysis Market (potential intellectual descendant of RAND's Delphi method and author John Brunner's Delphi pool) to get off the ground. He points to the success of public and internal corporate markets as evidence that a collection of individuals with varying points of view but the same motivation (to make a good guess) can produce an accurate aggregate prediction. According to Surowiecki the aggregate predictions have been shown to be more reliable than the output of any think tank. He advocates extensions of the existing futures markets even into areas such as terrorist activity, and prediction markets within companies.

To illustrate its thesis, he says that his publisher is able to publish a more compelling output by relying on individual authors under one-off contracts bringing book ideas to them. In this way they are able to tap into the wisdom of a much larger crowd than would be possible with an in-house writing team.

Will Hutton has argued that Surowiecki's analysis applies to value judgements as well as factual issues, with crowd decisions that "emerge of our own aggregated free will [being] astonishingly... decent". He concludes that "There's no better case for pluralism, diversity and democracy, along with a genuinely independent press." [2].

Quite a few other experimental sites have been constructed to explore the potential of building collective wisdom. One site, Opinion Republic (http://www.opinionrepublic.com) is an experiment to capture public opinion and then converge on the most broadly accepted opinions.