The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, published in 2004, is a book written by James Surowiecki about 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 economics and psychology. The opening anecdote relates Francis Galton's surprise that the crowd at a county fair accurately guessed the weight of an ox when the median of their individual guesses was taken (the median was closer to the ox's true butchered weight than the estimates of most crowd members). The book relates to diverse collections of independently deciding individuals, rather than crowd psychology as 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; however, 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 Thinking and information processing, such as market judgment, 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. According to Surowiecki, these key criteria separate wise crowds from irrational ones:
Based on Surowiecki's book, Oinas-Kukkonen captures the wisdom of crowds approach with the following eight conjectures:
It is possible to describe how people in a group think as a whole. In some cases, groups are remarkably intelligent and are often smarter than the smartest people in them. The three conditions for a group to be intelligent are diversity, independence, and decentralization. The best decisions are a product of disagreement and contest. Too much communication can make the group as a whole less intelligent. Information aggregation functionality is needed. The right information needs to be delivered to the right people in the right place, at the right time, and in the right way. There is no need to chase the expert.
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 systemic flaw. Causes and detailed case histories of such failures include:
Connection At the 2005 O'Reilly Emerging Technology Conference Surowiecki presented a session entitled Independent Individuals and Wise Crowds, or Is It Possible to Be Too Connected?
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? He recommends:
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 and others also discuss the success of Google, wikis, blogging, and Web 2.0 in the context of the wisdom of crowds.
Applications Surowiecki is a strong advocate of the benefits of decision markets and regrets the failure of DARPA's controversial Policy Analysis Market to 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 this thesis, he says that his publisher can 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 into the wisdom of a much larger crowd than would be possible with an in-house writing team. Will Hutton has 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." Applications of the wisdom-of-crowds effect exist in three general categories: Prediction markets, Delphi methods, and extensions of the traditional opinion poll.
Prediction markets
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