The Wisdom of Crowds

The Wisdom of Crowds – James Surowiecki

At a country fair in England in 1906, the scientist Francis Galton noticed that when hundreds of people guessed the weight of an ox, the average of their guesses was remarkably close to the true weight, more accurate than most individual experts. This observation inspired James Surowiecki, a business columnist for The New Yorker, to explore a surprising idea in The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations.

Surowiecki argues that under the right conditions, groups can be remarkably intelligent, often smarter than the smartest individuals within them. He identifies three kinds of problems that crowds can help solve: cognition problems, which have definite answers; coordination problems, in which people must align their behavior with others; and cooperation problems, in which self-interested individuals must work together.

For a crowd to be wise, he explains, certain conditions must be met: diversity of opinion, independence of judgment, decentralization, so that people can draw on local knowledge, and a good method of aggregating individual judgments into a collective decision. When these conditions are absent, crowds can go badly wrong, producing herd behavior, bubbles and panics.

Surowiecki illustrates his ideas with examples from stock markets, prediction markets, scientific research, traffic, sports betting, the search for a lost submarine, the investigation of the space shuttle Challenger disaster, and corporate decision making, and discusses the implications for business, government and democracy.

Engaging and thought-provoking, The Wisdom of Crowds is a valuable read for anyone interested in decision making, economics and organizations. Some examples reflect the time of publication.