WISDOM OF CROWDS

Surowiecki, James (2004) The wisdom of crowds New York: Doubleday

The author explores how crowds (people who do not share much of their information with others, but share the same interest) generally make fairly accurate predictions. Surowiecki spends time differentiating what he means by crowds and what sociologists, political scientists and social psychologist define that word. Thus his term is generic and he shows how large groups of diverse people come to a common knowledge about an issue.

He gives many examples of the crowd’s accuracy. Galton found that a crowd could estimate the weight of an animal within a pound or two. He also supports “experts” as long as they do not intellectually feed on each other, but have the experience of continually talking to diverse people who may have new information yet to be known in the literature. Reality keeps rapidly changing, thus the information of a diverse crowd is helpful.

However, this is not a book on the power of crowds. Numerous sages of the past including Marx, Pareto, Michels and others, generally thought that a powerful few guide the many. It is the elite who continually outsmart the dispersed. Masses do best when aroused, but quickly lose power. On the other hand, the many have a group wisdom that seems to be quite accurate.

Although there are numerous random sample polls, small non-random quasi-futures markets, where individuals can buy shares in terms of who will win the next presidential election, appear to be quite accurate. That has been the experience of the University of Iowa’s I.E.M. presidential poll.

The author suggests that if companies are to succeed like Toyota, power needs to be flattened and market futures polls should be continually taken on time specific issues. What will happen 20 years from now is too much. However, a question about the need for more cars that get more miles per gallon is helpful. These findings should help guide but not determine the elite who run a company. Reality is chaotic and yet crowds when diverse can sense an order that lies beneath. If a company has a winning formula, it can still make many changes within that formula to succeed.

Surowiecki applies his theme to so many different types of groups from nations, to stock markets, to… beauty contests that the book is both pragmatic and wide reaching in its application.

This book should enlighten both applied practioners and academics. The illustrations are so interesting that numerous other readers will also enjoy it.