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” is a book by James Surowiecki.He is a staff writer at The New Yorker, where he writes a business column. His articles are also published in The New York Times and The Wall Street Journal. The book starts with an extraordinary case. In 1906 famous statistics specialist Professor Francis Galton visited the Annual West of England Stock and Poultry Exhibition. In this fair there was a weight judging contest. A fat ox had been selected and placed on display and members of a crowd were lining up to place wagers on the weight of the ox. Eight hundred people tried their luck. All the guesses were averaged at the end of the contest, and the total came to 543 kilograms. After the ox had been slaughtered, it weighted 543 kilograms. This was really surprising because 800 different people from different backgrounds had made guesses and none of them were successful in making an exact guess. Thus, their collective mind was much better than their individual minds.

The second case is much more impressive. In May 1968, the US Submarine Scorpion disappeared after a tour in the North Atlantic. Although the navy knew the last reported location, it did not know its current location. The experts worked on the problem, but each of them calculated a different spot. The naval officer John Craven had a different plan. Instead of scanning the suggested spots, Craven calculated the geometric average of suggested spots, in other words, the middle of seven different suggested spots. In the end, the submarine was found at the spot that was the geometric average. Again the collective mind of specialists was much better than their individual minds.
In the popular TV show “Who Wants to Be a Millionaire?” experts offered the right answer under pressure almost 65 percent of the time, but the random crowds of people picked the right answer 91 percent of the time.
On Jan. 28, 1986 the space shuttle Challenger exploded 74 seconds after take-off. Within minutes the shares of four contractors began to drop on the stock exchange. These contractors were Morton Thiokol, Lockheed Martin, Marietta and Rockwell. No one knew who was responsible for the disaster, but investors started to punish the contractors. The shuttle was so badly damaged that it was next to impossible to find out the real reason behind the explosion. In a few days, the share prices of three of the contractors returned to normal, but Morton Thiokol’s stock was hit hard for months. After a long investigation, one defective mechanical piece manufactured by Morton Thiokol was listed as the cause of the explosion.
What we understand from these examples is that crowds are wiser than individuals. However, there is a problem; our decision-making systems are generally based on individuals. The CEOs, the prime ministers, medical doctors and specialists generally make their decisions individually. But we need the wisdom of the crowds; and somehow we have to put the minds of the crowds into the decision-making process. According to Surowiecki, there are four characteristics of wise crowds: diversity of opinion, independence, decentralization and aggregation. First, each person should have some private information. When the input is the same, the output will be the same. Second, people’s opinions are not to be dominated by the opinions of others. Otherwise there will be no independent opinions. Third, decentralization is important; people should be able to specialize and draw on local knowledge, as this will provide diversity in opinions. Finally, aggregation is necessary. Like the stock exchange, some mechanisms are necessary to turn private judgments into a collective decision.
Under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them. Groups do not need to be dominated by exceptionally intelligent people in order to be smart. Even if most of the people within a group are not especially well-informed or rational, the group can still reach a collectively wise decision.
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