Highlights from James Surowiecki's book The Wisdom of Crowds
H. L. Mencken who once wrote, "No one is this world, so far as I know, has ever lost money by underestimating the intelligence of the great masses of the plain people." Well, perhaps he was wrong, Surowiecki finds that non-experts are collectively smarter than individual experts or even small groups of experts.
The 20th century British scientist Francis Galton believed that political power should stay within the hands of the few well-bred individuals. Hence, he devoted much of his career to measuring physical and mental qualities of ordinary people.
In 1906 he visited the West of England Fat Stock and Poultry Exhibition county, and came across a weight-judging competition - an event that would challenge the foundations of his life's study. A fat ox was on display and for six-pence fair-goers could guess of the animal's weight once slaughtered and dressed, the best guess receiving a prize.
Eight hundred people tried their luck. They were diverse. Many had no knowledge of livestock; others were butchers and farmers. In Galton's mind this was a perfect analogy for democracy. He wanted to prove the average voter was capable of very little. Yet to his surprise, when he averaged the guesses, the total came to 1197 pounds. After the ox had been slaughtered, it weighted 1198.
That experience began to change Francis. He wrote, "The result seems more creditable to the trustworthiness of a democratic judgment than might have been expected." What Francis stumbled on, was that under the right circumstances, groups are remarkable intelligent, and are often smarter than the smartest people.
Galton's research was the first on the topic. Since then, subsequent tests in many fields, has proven the "wisdom of crowds."
In 1968, a U.S. submarine disappeared. No one knew where the submarine was headed and how far it had travelled. An officer gathered widely diverse people with various backgrounds (e.g., submarines, mathematics, salvaging). Instead of consulting with each other, the group competed for prizes, by placing a bet on what happened. The officer took the various locations guesses and performed statistical analysis to come up with a "consensus guess." The sub was less than 300 yards from the consensus guess.
James Surowiecki takes this notion and explores its ramification for business, government, science and the economy. Most of us believe that valuable nuggets of knowledge are concentrated in few minds. We believe the solution to our complex problems lies in finding the right person. Actually all we have to do, Surowiecki demonstrates, is ask the gathered crowd.
Crowds seem to excel in three types of decisions or problem solving:
Cognition : Crowds can be good at solving problems with a definite outcome.
Coordination : Crowds can be good at coordinating their members' movements.
Cooperation : People who do not even know each other can work together for the common good.
There are three important factors to getting wisdom from a group:
Diversity: A group of people with different kinds of expertise and varying perspectives works best
Independence: Each person must think as an individual and not simply follow each other.
When the influence of the group becomes too strong, people engage in herd behavior
Decentralization: Central direction impedes the wisdom of crowds, because it hampers diversity and independence