The Wisdom of Crowds: Why the Many Are Smarter Than the Few

Summary

Nobody wants to be average. Average feels grey, boring and unexceptional. It creates a feeling of mediocrity or banality – the masses, the run of the mill. However, the reality is that, in the right circumstances, the average is where you want to be. In James Surowiecki’s smart book, The Wisdom of Crowds, he lays out a valuable counter-argument to the contempt for crowds that dates back hundreds of years.

Even if you despise crowds and stay away from them, The Wisdom of Crowds is a thought-provoking read that convincingly pushes a theory with important implications in business, investing, and the direction of the economy today.

THINK Review

Nobody wants to be average. Average feels grey, boring and unexceptional. It creates a feeling of mediocrity or banality – the masses, the run of the mill. However, the reality is that, in the right circumstances, the average is where you want to be.

Take a competition where you’re guessing the number of M&M’s in a glass jar. In general, the average of crowd’s guesses is more likely to be accurate than those of its individual members. Although it doesn’t feel right in our gut, the masses can be smarter than one proficient expert. All hail mediocrity.

“Diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise.”

In James Surowiecki’s smart book, The Wisdom of Crowds, he lays out a valuable counter-argument to the contempt for crowds that dates back hundreds of years. The average of a sufficient number of guesses will get the number of M&M’s right, even where individual responses might be swayed by distracting or misleading information. Collect enough people on a street staring at the sky, and everyone walking by will look up. Share with a voter enough political broadcasts or commentaries and she may change her vote – even against her interests.

Surowiecki admits that groupthink can occur. For collective intelligence to work, he contends that you need a myriad of views and data. He writes, “Diversity and independence are important, because the best collective decisions are the product of disagreement and contest, not consensus or compromise.” He discusses such potentially dangerous developments as information cascades, where a few influential individuals might steer the crowd in what could very well be an irrational direction. Another danger: Experts and academics, as well as businesspeople in small groups, can be so alike in their outlooks that they become myopic, deciding (probably unconsciously) that dissent is not useful. When this happens, dissenters might find it’s easier to change their own opinions than duke it out with the group. Bubbles work in a similar way. When everyone buys into conventional wisdom, collective intelligence relies on the existence of people who aren’t easily swayed by a crowd.

“Groups are only smart when there is a balance between the information that everyone in the group shares and the information that each of the members of the group holds privately. It’s the combination of all those pieces of independent information, some of them right, some of the wrong, that keeps the group wise.”

Even if you despise crowds and stay away from them, The Wisdom of Crowds is a thought-provoking read that convincingly pushes a theory with important implications in business, investing, and the direction of the economy today.

“Independence is important to intelligent decision making for two reasons. First, it keeps the mistakes that people make from becoming correlated. Errors in individual judgment won’t wreck the group’s collective judgment as long as those errors aren’t systematically pointing in the same direction. One of the quickest ways to make people’s judgments systematically biased is to make them dependent on each other for information.” 

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