The reason for this superiority is that each individual brings to the problem some valuable unique knowledge or perspective, and any errors in that knowledge or perspective are balanced off against those of others in the group, so the collective wisdom of the group is likely to be extremely accurate, reliable, knowledgeable, and predictive. If you're skeptical, please read the book -- Surowiecki presents dozens of examples to support this thesis. The average prediction of one such group, the Iowa Electronic Market, over the several months before the election, was that Bush would win by a comfortable 3% margin and that Republicans would make gains in both houses of Congress. They were exactly right.
The Wisdom of Crowds - review
MOBS RULE
case for unlikely notion that the
many are smarter than the few;
THE WISDOM OF CROWDS:
and How Collective Wisdom Shapes
Business, Economies, Societies, and Nations.
IN 1906 the English scientist Francis Gaston visited a country livestock fair and stumbled upon an intriguing contest. An ox was on display, and villagers were invited to guess the animal's weight after slaughtering and dressing. Nearly 800 of them gave it a go, and not surprisingly not one hit the exact mark: 1,198 pounds. Astonishingly, however, the average of those 800 guesses came close — very close indeed. It was 1,197 pounds.
This anecdote captures the striking thesis of James Surowiecki's The Wisdom of Crowds. "[U]nder the right circumstances," Surowiecki argues, "groups are remarkably intelligent, and are often smarter than the smartest people in them." For evidence he cites how groups have been used to find lost submarines, correct the spread on sporting events, locate Web pages, even predict who will be elected president of the United States. So why aren't we using groups more?
For one thing, crowds have a pretty bad rep. Crowds have ignited lynchings, financial panics and styling trends like the mustache or jock-hawk.
Furthermore, as Surowiecki notes, corporate structure is enthralled by the idea of expertise. Strategy consultants demand $200 an hour to tell companies what to do. Top executives rake in eight-figure salaries to rescue sinking ships. To accept that the masses might know something would mean radically altering how our country operates.
As counterintuitive as it sounds, however, groupthink works so long as Surowiecki's three key criteria — independence, diversity and decentralization — are satisfied. If you ask a large enough group to make a prediction or estimate a probability, he writes, the errors individuals make cancel each other out. "Subtract the error, and you're left with the information." In this fashion the TV studio audience of Who Wants to Be a Millionaire guessed the right answer to questions 91 percent of the time; "experts" guessed right only 65 percent of the time.
Make no mistake, Surowiecki is a business columnist for the New Yorker magazine, and The Wisdom of Crowds packs more textbook terms than an economics primer. One need not be a CEO or amateur stock trader to appreciate this book, but a certain patience with lingo does help.
Overall, however, Surowiecki is a patient and vivid writer with a knack for culling entertaining examples. To demonstrate the importance of diversity on group wisdom, he describes how NFL head coaches continue to kick field goals when, statistics have shown, they are better off going for it. Coaches come from similar backgrounds and work in similar situations, and this leads to a group of risk-averse decision-makers. The result? They think inside the proverbial box.
The application of group wisdom stretches far beyond football games, though, which is why this book is not just revolutionary but essential reading for all types of people. Take national security. In one section, Surowiecki describes how the United States blundered into the Bay of Pigs invasion because the decision-making group — the president and his advisers — all shared similar conceptions and assumptions. In short, the group lacked diversity and as a result demonstrated a colossal example of the failings of groupthink.
The Wisdom of Crowds is likely to raise a certain amount of controversy and not just because of Surowiecki's counterintuitive thesis. In one section Surowiecki encourages the intelligence community to revisit the idea of using futures markets — where people bet on impending disasters — to enhance homeland security.
Still, there is something hopeful about Surowiecki's grand idea. One need only read the lengthy subtitle to appreciate the whiff of populism here. New York, Boston and Los Angeles might remain our nation's cultural capitals, Surowiecki suggests, but the rest of the madding crowd might know a thing or two. If for that reason alone, one hopes the group approves of Surowiecki's book — and in a big way.
http://www.chron.com/cs/CDA/ssistory.mpl/ae/books/reviews/2658031
The Wisdom of Crowds - James Surowiecki - excerpt
Large groups of people are smarter than an elite few, no matter how brilliant—better at solving problems, fostering innovation, coming to wise decisions, even predicting the future...
Why is the line in which you’re standing always the longest?
Why is it that you can buy a screw anywhere in the world and it will fit a bolt bought ten-thousand miles away?
Why is network television so awful?
If you had to meet someone in Paris on a specific day but had no way of contacting them, when and where would you meet?
Why are there traffic jams?
- What’s the best way to win money on a game show?
-
Why, when you walk into a convenience store at 2:00 A.M.
to buy a quart of orange juice, is it there waiting for you? -
What do Hollywood mafia movies have to teach us
about why corporations exist? -
What does guessing the weight of an ox at a country fair
have to do with the 9/11 attacks? - How does a flock of birds relate to a traffic jam?
- Why doesn't collective wisdom believe in collective wisdom?
Explores these and other questions and explainations about how groups of people, in specific kinds of circumstances, can reach intelligent, accurate decisions that can then go horribly wrong.
---------------------------------
While our culture generally trusts experts and distrusts the wisdom of the masses, under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.
To support this almost counterintuitive proposition, Surowiecki explores problems involving cognition (we're all trying to iden?ify a correct answer), coordination (we need to synchronize our individual activities with others) and cooperation (we have to act together despite our self-interest).
His rubric, then, covers a range of problems, including driving in traffic, competing on TV game shows, maximizing stock market performance, voting for political candidates, navigating busy sidewalks, tracking SARS and designing Internet search engines like Google.
If four basic conditions are met, a crowd's "collective intelligence" will produce better outcomes than a small group of experts, Surowiecki says, even if members of the crowd don't know all the facts or choose, individually, to act irrationally. "Wise crowds" need;
(2) independence of members from one another;
(3) decentralization; and
(4) a good method for aggregating opinions.
The diversity brings in different information; independence keeps people from being swayed by a single opinion leader; people's errors balance each other out; and including all opinions guarantees that the results are "smarter" than if a single expert had been in charge.
...an interesting twist on the long held notion that Americans generally question the masses and eschew groupthink.
...the TV studio audience of Who Wants to Be a Millionaire guesses correctly 91 percent of the time, compared to “experts” who guess only 65 percent correctly. Keep up the good work, comrades.
------------------------------------
-- Paul Ginsparg
-- Donald Norman
-- Principal Seymour Skinner
-- Agent K
The wisdom of crowds you say? As Surowiecki explains, yes, but only under the right conditions. In order for a crowd to be smart, he says it needs to satisfy four conditions:
1. Diversity. A group with many different points of view will make better decisions than one where everyone knows the same information. Think multi-disciplinary teams building Web sites...programmers, designers, biz dev, QA folks, end users, and copywriters all contributing to the process, each has a unique view of what the final product should be. Contrast that with, say, the President of the US and his Cabinet.
2. Independence. "People's opinions are not determined by those around them." AKA, avoiding the circular mill problem.
3. Decentralization. "Power does not fully reside in one central location, and many of the important decisions are made by individuals based on their own local and specific knowledge rather than by an omniscient or farseeing planner." The open source software development process is an example of effect decentralization in action.
4. Aggregation. You need some way of determining the group's answer from the individual responses of its members. The evils of design by committee are due in part to the lack of correct aggregation of information. A better way to harness a group for the purpose of designing something would be for the group's opinion to be aggregated by an individual who is skilled at incorporating differing viewpoints into a single shared vision and for everyone in the group to be aware of that process (good managers do this). Aggregation seems to be the most tricky of the four conditions to satisfy because there are so many different ways to aggregate opinion, not all of which are right for a given situation.
Satisfy those four conditions and you've hopefully cancelled out some of the error involved in all decision making:
If you ask a large enough group of diverse, independent people to make a prediciton or estimate a probability, and then everage those estimates, the errors of each of them makes in coming up with an answer will cancel themselves out. Each person's guess, you might say, has two components: information and error. Subtract the error, and you're left with the information.
The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations
http://www.amazon.com/exec/obidos/tg/detail/-/0385503865/
-------------------------------------------
Q & A with James Surowiecki
How did you discover the wisdom of crowds?
The idea really came out of my writing on how markets work. Markets are made up of diverse people with different levels of information and intelligence, and yet when you put all those people together and they start buying and selling, they come up with generally intelligent decisions. Sometimes, though, they come up with remarkably stupid decisions—as they did during the stock-market bubble in the late 1990s. I was interested in what explained the successes and the failures of markets, and as I got further into it I realized that it wasn't just markets that were smart. In fact, crowds of all sorts were often remarkably wise.
Could you define "the crowd?"
A "crowd," in the sense that I use the word in the book, is really any group of people who can act collectively to make decisions and solve problems. So, on the one hand, big organizations—like a company or a government agency—count as crowds. And so do small groups, like a team of scientists working on a problem. But just as interested—maybe even more interested—in groups that aren't really aware themselves as groups, like bettors on a horse race or investors in the stock market. They make up crowds, too, because they're collectively producing a solution to a complicated problem: the bets of people betting on a horse race determine what the odds on the race will be, and the choices of investors determine stock prices.
Under what circumstances is the crowd smarter?
There are four key qualities that make a crowd smart. It needs to be diverse, so that people are bringing different pieces of information to the table. It needs to be decentralized, so that no one at the top is dictating the crowd's answer. It needs a way of summarizing people's opinions into one collective verdict. And the people in the crowd need to be independent, so that they pay attention mostly to their own information, and not worrying about what everyone around them thinks.
And what circumstances can lead the crowd to make less-than-stellar decisions?
Essentially, any time most of the people in a group are biased in the same direction, it's probably not going to make good decisions. So when diverse opinions are either frozen out or squelched when they're voiced, groups tend to be dumb. And when people start paying too much attention to what others in the group think, that usually spells disaster, too. For instance, that's how we get stock-market bubbles, which are a classic example of group stupidity: instead of worrying about how much a company is really worth, investors start worrying about how much other people will think the company is worth. The paradox of the wisdom of crowds is that the best group decisions come from lots of independent individual decisions.
What kind of problems are crowds good at solving and what kind are they not good at solving?
Crowds are best when there's a right answer to a problem or a question. (I call these "cognition" problems.) If you have, for instance, a factual question, the best way to get a consistently good answer is to ask a group. They're also surprisingly good, though, at solving other kinds of problems. For instance, in smart crowds, people cooperate and work together even when it's more rational for them to let others do the work. And in smart crowds, people are also able to coordinate their behavior—for instance, buyers and sellers are able to find each other and trade at a reasonable price—without anyone being in charge. Groups aren't good at what you might call problems of skill—for instance, don't ask a group to perform surgery or fly a plane.
Why are we not better off finding an expert to make all the hard decisions?
Experts, no matter how smart, only have limited amounts of information. They also, like all of us, have biases. It's very rare that one person can know more than a large group of people, and almost never does that same person know more about a whole series of questions. The other problem in finding an expert is that it's actually hard to identify true experts. In fact, if a group is smart enough to find a real expert, it's more than smart enough not to need one.
Can you explain how a betting pool can help predict the future?
Well, predicting the future is what bettors try to do every day, when they try to figure out what horse will win a race or what football team will win on Sunday. What horse-racing odds or a point spread represent, then, is the group's collective judgment about the future. And what we know from many studies is that that collective judgment is often remarkably accurate. Now, we have to be careful here. In the case of a horse race, for instance, what the group is good at predicting is the likelihood of each horse winning. The potential benefits of this are pretty obvious. If you're a company, say, that's trying to decide which product you should put out, what you want to know is the likelihood of success of your different options. A betting pool—or a market, or some other way of tapping into the wisdom of crowds—is the best way for you to get that information.
Can you give an example of a current company that is tapping into the "wisdom of crowds?"
There's a division of Eli Lilly called e.Lilly, which has been experimenting with using internal stock markets and hypothetical drug candidates to predict whether new drugs will gain FDA approval. That's an essential thing for drug companies to know, because their whole business depends on them not only picking winners—that is, good, safe drugs—but also killing losers before they've invested too much money in them.
You've explained how tapping into the crowd's collective wisdom can help a corporation, but how can it help other entities, like a government, or perhaps more importantly, an individual?
Well, the same principles that make collective wisdom useful to a company make it just as useful to the government. For instance, in the book I talk about the Columbia disaster, showing how NASA's failure to deal with the shuttle's problems stemmed, in part, from a failure to tap into knowledge and information that the people in the organization actually had. And in a broader sense, I think the book suggests that the more diverse and free the flow of information in a society is, the better the decisions that society will reach. As far as individuals go, I think there are two consequences. First, we can look to collective decisions—as long as the groups are diverse, etc.—to give us good predictions. But the collective decisions will only be smart if each of us tries to be as independent as possible. So instead of just taking the advice of your smart friend, you should try to make your own choice. In doing so, you'll make the group smarter.
When you talk about using the crowd to make a decision, are you talking about consensus?
No, and this is one of the most important points in the book. The wisdom of crowds isn't about consensus. It really emerges from disagreement and even conflict. It's what you might call the average opinion of the group, but it's not an opinion that every one in the group can agree on. So that means you can't find collective wisdom via compromise.
What would Charles MacKay—the author of Extraordinary Popular Delusions and the Madness of Crowds—think of your book?
He would probably think I'm deluded. Mackay thought crowds were doomed to excess and foolishness, and that only individuals could produce intelligent decisions. On the other hand, a good chunk of my book is about how crowds can, as it were, go mad, and what allows them to succumb to delusions. Mackay would like those chapters.
What do you most hope people will learn from reading THE WISDOM OF CROWDS?
I think the most important lesson is not to rely on the wisdom of one or two experts or leaders when making difficult decisions. That doesn't mean that expertise is irrelevant, or that we don't need smart people. It just means that together all of us know more than any one of us does.
http://www.randomhouse.com/features/wisdomofcrowds/
---------------------------------------
Sunday, November 07 2004 09:04 PM EST
On October 15th, Mike Perry of Inkling Books in a comment recommended a book to Groklaw readers called "The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations". The book is by James Surowiecki, who writes The Financial Page for The New Yorker magazine. Perry asked if any Groklaw readers would write a review, and one reader, Nick, accepted the challenge. Here, then, is a his review of "The Wisdom of Crowds":
**********************************
We all know that crowds are dumb, right? That's where riots come from. Lowest common denominator, and all that. So why did Mr. Surowiecki call his book "The Wisdom of Crowds" (and yes, it is a direct allusion to Charles Mackay's "Extraordinary Popular Delusions & The Madness of Crowds")? Simply put, while not denying the madness of crowd model in the right circumstances, it turns out that under other circumstances the crowd is wise. Very wise. In fact, wiser, more insightful, more accurate, more intelligent than any individual genius can hope to be. That's a strong statement, but Surowiecki backs it up with example after example to show what he means and why.
For example, note this quote:
"A classic demonstration of group intelligence is the jelly-beans-in-the-jar experiment, in which invariably the group's estimate is superior to the vast majority of the individual guesses. When finance professor Jack Treynor ran the experiment in his class with a jar that held 850 beans, the group estimate was 871. Only one of the fifty-six people in the class made a better guess." This is only one example of many in the book. No matter how knowledgeable the individual observer, a group estimate, even a group composed on non-experts, routinely trumps the individual in insight. Whether it involves counting jelly beans, estimating the weight of an ox, or assigning blame in the stock market to the correct company responsible for the Challenger accident in 1986, the crowd gets it right faster and more accurately than the individual expert. Note this other fascinating example:
"In May 1968, the U.S. submarine Scorpion disappeared on its way back to Newport News after a tour of duty in the North Atlantic. Although the navy knew the sub's last reported location, it had no idea what had happened to the Scorpion, and only the vaguest sense of how far it might have traveled after it had last made radio contact. As a result, the areas where the navy began searching for the Scorpion was a circle twenty miles wide and many thousands of feet deep. You could not imagine a more hopeless task. The only possible solution, one might have thought, was to track down three or four top experts on submarines and ocean currents, ask them where they thought the Scorpion was, and search there. But...a naval officer named John Craven had a different plan. "First, Craven concocted a series of scenarios -- alternative explanations for what might have happened to the Scorpion. Then he assembled a team of men with a wide range of knowledge, including mathematicians, submarine specialists, and salvage men. Instead of asking them to consult with each other to come up with an answer, he asked each of them to offer his best guess about how likely each of the scenarios was..Craven believed that if he put all the answers together, building a composite picture of how the Scorpion died, he'd end up with a pretty good idea of where it was...He took all the guesses, and used a formula called Bayes's theorem to estimate the Scorpion's final location..When he was done, Craven had what was, roughly speaking, the group's collective estimate of where the submarine was.
"The location that Craven came up with was not a spot that any individual member of the group had picked. In other words, not one of the members of the group had a picture in his head that matched the one Craven had constructed using the information gathered from all of them. The final estimate was a genuinely collective judgment that the group as a whole had made, as opposed to representing the individual judgment of the smartest people in it. It was also a genuinely brilliant judgment. Five months after the Scorpion disappeared, a navy ship found it. It was 220 yards from where Craven's group said it would be."
Remarkable, right? Is it just in humans that we see this sort of behavior? No. Consider how bees find good sources of nectar:
"They don't sit around and have a collective discussion about where foragers should go. Instead, the hives sends out a host of scout bees to search the surrounding area. When a scout bee has found a nectar source that seems strong, he comes back and does a waggle dance, the intensity of which is shaped, in some way, by the excellence of the nectar supply at the site. The waggle dance attracts other forager bees, which follow the first forager, while foragers who have found less-good sites attract fewer followers and, in some cases, eventually abandon their sites entirely. The result is that bee foragers end up distributing themselves across different nectar sources in an almost perfect fashion, meaning that they get as much food as possible relative to the time and energy they put into searching. It is a collectively brilliant solution to the colony's food problem. "What's important, though, is the way the colony gets to that collectively intelligent solution. It does not get there by first rationally considering all the alternatives, and then determining an ideal foraging pattern. It can't do this, because it doesn't have any idea what the possible alternatives -- that is, where the different flower patches -- are. So instead, it sends out scouts in many different directions and trusts that at least one of them will find the best patch, return, and do a good dance so that the hive will know where the food source is."
Now we begin to see the secret to this group wisdom effect. The more people involved (or the more bees), the greater the input from the group as a whole and the more likely it is that the correct solution is reached. That makes intuitive sense, for we all know that "two heads are better than one." So that means instead of relying on one expert, get a group of experts together, right? Wrong:
". . . [A] group made up of some smart agents and some not-so-smart agents almost always did better than a group made up just of smart agents. Diversity is, on its own, valuable, so that the simple fact of making a group diverse make it better at problem solving. That doesn't mean intelligence is irrelevant.. but it does mean that, on the group level, intelligence alone is not enough, because intelligence alone cannot guarantee you different perspectives on a problem.. Adding in a few people who know less, but have different skills, actually improves the group's performance." OK, now we're getting radical. A group of experts and non-experts is better than just a group of experts, even if the group size is the same? Surowiecki knows what you are thinking at this point and addresses it:
"Again, this doesn't mean that well-informed, sophisticated analysts are of no use in making good decisions. (And it certainly doesn't mean you want crowds of amateurs trying to collectively perform surgery or fly planes.) It does mean that however well-informed and sophisticated an expert is, his advice and predictions should be pooled with those of others to get the most out of him. (The larger the group, the more reliable its judgment will be.) And it means that attempting to 'chase the expert,' looking for the one man who will have the answers to an organization's problem, is a waste of time." So don't worry, he's not deprecating intelligence or expertise, and he acknowledges there are obvious times when you do want the lone expert working on your problem, especially if "your problem" is you need brain surgery. And Surowiecki absolutely acknowledges the problems that can come from relying on the crowd to achieve wisdom. But the principle upon which this book rests is expressed simply thus:
"The idea of the wisdom of crowds is not that a group will always give you the right answer but that on average it will consistently come up with a better answer than any individual could provide." It's that group experience that makes the difference. Expertise is needed, but relying on expertise alone will leave you worse off than if you couple expertise with diversity. Does that sound familiar? It should. It's the Linux model for developing software, and it's the Groklaw model for gathering legal news and insight. The more diverse the crowd, the greater the chance that one of those waggling bees will stumble upon the right answer, or the best answer. It works when looking for nectar, and it works when submitting bug fixes and new features for Linux. Notice what Surowiecki says about Linux:
"In the way it operates, in fact, Linux is not all that different from a market.. Like a bee colony, it sends out lots of foragers and assumes that one of them will find the best route to the flower fields. This is, without a doubt, less efficient than simply trying to define the best route to the field or even picking the smartest forager and letting him go. After all, if hundreds or thousands of programmers are spending their time trying to come up with a solution that only a few of them are going to find, that's many hours wasted that could be spent doing something else. And yet, just as the free market's ability to generate lots of alternatives and then winnow them down is central to its continued growth, Linux's seeming wastefulness is a kind of strength (a kind of strength that for-profit companies cannot, fortunately or unfortunately, rely on). You can let a thousand flowers bloom and then pick the one that smells the sweetest. "So who picks the sweetest-smelling one? Ideally the crowd would. But here's where striking a balance between the local and the global is essential: a decentralized system can only produce genuinely intelligent results if there's a means of aggregating the information of everyone in the system. Without such a means, there's no reason to think that decentralization will produce a smart result. In the case of Linux, it is the small number of coders, including Torvalds himself, who vet every potential change to the operating-system source code. There are would-be Linux programmers all over the world, but eventually all roads lead to Linus."
So we see that wisdom from crowds comes as a result of certain conditions. There are principles by which wisdom can come from the crowd (as opposed to madness):
". . . the four conditions that characterize wise crowds: diversity of opinion (each person should have some private information, even if it's just an eccentric interpretation of the known fact), independence (people's opinions are not determined by the opinions of those around them), decentralization (people are able to specialize and draw on local knowledge), and aggregation (some mechanism exists for turning private judgments into a collective decision). If a group satisfies those conditions, its judgment is likely to be accurate." What about the opposite result, the one where crowds are not wise and even dumb? Under what circumstances do crowds go wrong and start to riot (or in the case of online communities, start to turn on the community)? Surowiecki discusses this as well, offering this analysis of what causes a crowd to riot:
"The process by which a violent mob actually comes together seems curiously similar to the way a stock-market bubble works. A mob in the middle of a riot appears to be a single organism, acting with one mind. And obviously the mob's behavior has a collective dimension that a group of random people just milling about does not have. But sociologist Mark Granovetter argued that the collective nature of a mob was the product of a complicated process, rather than a sudden descent into madness. In any crowd of people, Granovetter showed, there are some people who will never riot, and some people who are ready to riot at almost any time -- these are the 'instigators.' But most people are somewhere in the middle. Their willingness to riot depends on what other people in the crowd are doing. Specifically, it depends on how many other people in the crowd are rioting. As more people riot, more people decide that they are willing to riot, too... "This makes it sound as if once one person starts a ruckus, a riot will inevitably result. But according to Granovetter, that's not the case. What determines the outcome is the mix of people in the crowd. If there are a few instigators and lots of people who will act only if a sizable percentage of the crowd acts, then it's likely nothing will happen. For a crowd to explode, you need instigators, 'radicals' -- people with low thresholds for violence -- and a mass of people who can be swayed. The result is that although it's not necessarily easy to start a riot, once a crowd crosses the threshold into violence, its behavior is shaped by its most violent members. If the image of collective wisdom that informs much of this book is the average judgment of the group as a whole, a mob is not wise. Its judgment is extreme...
"There is, in Granobetter's work, a hint as to what markets need to avoid endless bouts with irrational exuberance or irrational despair. In Granovetter's world, if there are enough people in the crowd who will not riot under any conditions -- that is, whose actions are independent of the crowd's behavior as a whole -- then a riot will be far less likely, because the more people who do not riot, the more people there will be who don't want to riot."
So there we have it, both the pattern for useful behavior from crowds, as well as warnings on how to avoid being sucked into negative mob behavior. When utilized properly, the wisdom of crowds is real. Surowiecki writes interestingly too about the financial markets and political thinking. But for Groklaw readers the application is direct and obvious. We've seen the wisdom of the crowds in the growth of Linux, and also in the growth of Groklaw. Both models follow principles that allow wisdom to bubble up from the group, with, as Surowiecki puts it, someone to pick the "sweetest flower". When you let a thousand flowers bloom, it's easy to pick the one that smells the sweetest. "The Wisdom of Crowds" is very interesting, and I highly recommend it.
