The Wisdom of Crowds
"The Wisdom of Crowds: 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 Surowieckiabout 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 economicsand psychology.
The opening anecdote relates
Francis Galton's surprise that the crowd at a county fair accurately guessed the weight of an oxwhen their individual guesses were averaged (the average was closer to the ox's true butchered weight than the estimates of most crowd members, and also closer than any of the separate estimates made by cattle experts). [Introduction (page XII): Although Surowiecki's description of the "averaging" calculation (page XIII) implies that Galton first calculated the " mean", inspection of the original 1907 paper indicates that Galton considered the " median" the best reflection of the crowd's estimate. (Cite journal | first = Francis | last = Galton | url = http://galton.org/essays/1900-1911/galton-1907-vox-populi.pdf?page=7 | journal = Nature| date = 1907-03-07 | title = Vox Populi | quote = the middlemost estimate expresses the vox populi ). Galton's quotation from the end of this paper (given by Surowiecki on page XIII) actually refers to the surprising proximity of the median and the measurement, and not to the (much closer) agreement of mean and measurement (which is the context Surowiecki gives it in). The mean (only 1 pound, rather than 9, from the Ox's weight) was only calculated in Galton's subsequent reply to a letter from a reader, though he still advocates use of the median over any of the "several kinds" of mean (Cite journal | first = Francis | last = Galton | url = http://galton.org/cgi-bin/searchImages/galton/search/essays/pages/galton-1907-ballot-box_1.htm | journal = Nature | date = 1907-03-28 | title = Letters to the Editor: The Ballot-Box | quote = my proposal that juries should openly adopt the median when estimating damages, and councils when estimating money grants, has independent merits of its own ). ]
The book relates to diverse collections of independently-deciding individuals, rather than
crowd psychologyas traditionally understood. Its central thesis, that a diverse collection of independently-deciding individuals is likely to make certain types of decisions and predictions better than individuals or even experts, draws many parallels with statistical sampling, but there is little overt discussion of statistics in the book.
Its title is an allusion to
Charles Mackay's " Extraordinary Popular Delusions and the Madness of Crowds," published in 1841.
Types of crowd wisdom
Surowiecki breaks down the advantages he sees in disorganized decisions into three main types, which he classifies as:; Cognition:
Marketjudgment, which he argues can be "much" faster, more reliable, and less subject to political forces than the deliberations of experts or expert committees.; Coordination: Coordination of behavior includes optimizing the utilization of a popular bar and 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 (below) for more examples of unwise crowds. According to Surowiecki, these 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
informationare 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 homogeneous: Surowiecki stresses the need for diversity within a crowd to ensure enough variance in approach, thought process, and private information. ; Too centralized: The Columbia shuttle disaster, which he blames on a hierarchical NASAmanagement bureaucracy that was totally closed to the wisdom of low-level engineers. ; Too divided: The USIntelligence community failed to prevent the 11 September 2001 attackspartly 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.):The Office of the Director of National Intelligenceand the CIAhave created a Wikipediastyle information sharing network called Intellipediathat will help the free flow of information to prevent such failures again.; Too imitative: Where choices are visible and made in sequence, an " information cascade" [Sushil Bikhchandani, David Hirshleifer, Ivo Welch. October 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades." "Journal of Political Economy", Vol. 100, No. 5, pp. 992-1026.] can form in which only the first few decision makers gain anything by contemplating the choices available: once past decisions have become sufficiently informative, it pays for later decision makers to simply copy those around them. This can lead to fragile social outcomes.; Too emotional: Emotional factors, such as a feeling of belonging, can lead to peer pressure, herd instinct, and in extreme cases collective hysteria.
Is it possible to be too connected?
Surowiecki presented a session entitled "Independent Individuals and Wise Crowds, or Is It Possible to Be Too Connected?" [ [http://conferences.oreillynet.com/cs/et2005/view/e_sess/7022 Independent Individuals and Wise Crowds, or Is It Possible to Be Too Connected?] at the 2005 Emerging Technology Conference]
: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?
* Keep your ties loose.
* Keep yourself exposed to as many diverse sources of information as possible.
* Make groups that range across hierarchies.
Tim O’Reilly [ [http://www.oreillynet.com/pub/a/oreilly/tim/news/2005/09/30/what-is-web-20.html?page=3 O'Reilly -- What Is Web 2.0] ] and others also discuss the success of
wikis, blogging, and Web 2.0in the context of the wisdom of crowds.
Surowiecki is a very strong advocate of the benefits of decision markets and regrets the failure of
DARPA's controversial Policy Analysis Marketto get off the ground. He points to the success of public and internal corporate markets as evidence that a collection of people 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 the wisdom of a much larger crowd than would be possible with an in-house writing team.
Will Huttonhas argued that Surowiecki's analysis applies to value judgments 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." [Cite web | url = http://observer.guardian.co.uk/comment/story/0,6903,1572869,00.html | title = Comment: The crowd knows best| publisher = Guardian Unlimited| accessdate = 2007-11-14 | date = 2005-09-18 | first = Will | last = Hutton ]
Applications of the wisdom-of-crowds effect exist in three general categories:
Prediction markets, Delphi methods, and extensions of the traditional opinion poll.
The most common application is the prediction market, a speculative or betting market created to make verifiable predictions. Surowiecki discusses the success of
prediction markets. Similar to Delphi methods but unlike opinion polls, prediction (information) markets ask questions like, “Who do you think will win the election?” and predict outcomes rather well. Answers to the question, "Who will you vote for?" are not as predictive.
Assets are cash values tied to specific outcomes (e.g., Candidate X will win the election) or parameter (e.g., Next quarter's revenue). The current market prices are interpreted as predictions of the probability of the event or the expected value of the parameter.
NewsFuturesis an international prediction market that generates consensus probabilities for news events. [http://www.consensusview.com Consensus View] predicts the performance of financial markets, including stocks, futures and foreign exchange. Several companies now offer enterprise class prediction marketplaces to predict project completion dates, sales, or the market potential for new ideas.Fact|date=November 2007
Delphi methods are information aggregation tools that include Hutton's notion of judgments as well as verifiable outcomes. [http://www.dialogr.com/PostThought.cfm?TopicId=60 Dialogr] is a Delphi method that elicits, judges, and aggregates the collective value of ideas. [http://dotmocracy.org Dotmocracy] is an off line facilitation method that allows participants to generate ideas and recognize levels of collective agreement. [http://www.techcast.org TechCast] is an example of a Delphi-based forecasting project since 1983. About 100 worldwide experts participate and are making specific forecasts on 70 technologies in seven fields. Many of the consensus forecasts have proven to be more accurate than forecasts made by individuals.
Dumb agent theory
Efficient market hypothesis
Information Routing Group
Iowa Electronic Markets
Open source governance
Policy Analysis Marketsupported by the author of The Wisdom of Crowds
Scenario Voting- a Microsoft application of The Wisdom of Crowds
Who Wants To Be A Millionaire?(The "Ask the Audience" option)
* Sushil Bikhchandani,
David Hirshleifer, and Ivo Welch. "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades." "Journal of Political Economy", Vol. 100, No.5, pp. 992-1026, 1992.
* Surowiecki, James (2004). "The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations" Little, Brown ISBN 0-316-86173-1
* Lee, Gerald Stanley (1913). "Crowds. A moving-picture of democracy". Doubleday, Page & Company. Available from
Project Gutenbergat [http://www.gutenberg.org/etext/15759] , retrieved May 2005.
* Le Bon, Gustave. (1895), "The Crowd: A Study of the Popular Mind". Available from
Project Gutenbergat [http://onlinebooks.library.upenn.edu/webbin/gutbook/lookup?num=445] .
Steven Johnson, "Emergence: the connected lives of ants, brains, cities and software" (2002) Scribner, ISBN 0-684-86876-8
Cass R. Sunstein, "Infotopia: How Many Minds Produce Knowledge" (2006) Oxford University Press, ISBN 0195189280
* [http://www.itconversations.com/shows/detail468.html James Surowiecki - Independent Individuals and Wise Crowds] Audio interview from IT Conversations
* [http://www.wired.com/wired/archive/14.06/look.html Wired Magazine] "Look Who's Crowdsourcing"¨
* [http://www.netmining.com Net Mining]
* [http://cci.mit.edu MIT Center for Collective Intelligence] "Prof. Tom Malone's research center"
* [http://news.com.com/Tech+lessons+learned+from+the+wisdom+of+crowds/2100-1014_3-6143896.html C/Net News] "Tech lessons learned from the wisdom of crowds"¨
* [http://www.openeur.com/blog/en Openeur - Scientific Blog about Open Innovation & Entrepreneurship]
* [http://www.bsherman.net/WisdomofCrowds.mp3] Interview with James Surowiecki and Joyce Berg of the
Iowa Electronic Markets
* [http://galton.org/essays/1900-1911/galton-1907-vox-populi.pdf] "Francis Galton, Vox Populi, Nature, v75, p450-451" (scanned facsimile)
* [http://www.edery.org/2006/09/using-games-to-tap-collective-intelligence/ Game Tycoon] "Using Games to Tap Collective Intelligence". [http://www.edery.org/2006/11/using-games-to-tap-collective-intelligence-part-2/ Part 2] of the article.
* [http://www.ask500people.com/] Instant polling application based on The Wisdom of Crowds.
* [http://www.economist.com/science/displaystory.cfm?story_id=11614183 Economist - The Crowd Within] Individuals being their own "crowd" to make better guesses
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