Skip to content

The Wisdom of Crowds – Book Review – Al Youngblood

by on November 11, 2008

The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations. James Surowieki. New York: NY: Random House, 2005. 306 pp. $14.00. (ISBN-13: 978-0385721707)

Introduction

At the heart of this compelling book is the premise that groups of people are capable of making decisions which are superior to those made by an individual. Groups are found in many types of forms, from mobs of people baiting a woman to jump from a Seattle bridge (p.256), to crowds walking in coordination with one another in a busy atrium, to more sophisticated structures like corporations or governments. Through a variety of montages, news clippings, historical accounts, and the voices of social psychology, The Wisdom of Crowds defines the basis of what constitutes a wise crowd and how that crowd can be harnessed.

It is worth noting that The Wisdom of Crowds is not “meant as a defense of laypeople versus experts,” and instead should be seen as making the case for a diversity of opinions, both expert and lay, that together they can produce a collective solution that is remarkable (p.277).

Types of Problems Crowds Can Solve

Crowds are not boundless in their potential to solve all types of problems. Rather, crowds are more apt to capture solutions for problems where perspectives can shift readily and where there is little available information to help solve these problems.

First, cognition problems are definite in form and usually have defined solutions. In the start of the book, Surowieki describes how a group of people at a county fair were able to accurately guess the weight of an ox when their answers were averaged. For this example, the perceived weight and carcass of the ox were readily known. Markets fit well into the class of cognition. Stocks on an exchange are ideally set to the value which the market has set based upon its available knowledge. It is these agreed-upon “variables” which allow a consistent solution to the equation.

Second, coordination problems involve the position of people in relation to one another, such as in traffic flows, crowded markets, or train schedules. Key to the coordination problem is that each individual makes choices about where to go next based on information at hand. Self-autonomous decision making happens with the guidance of “landmarks” that give some instruction. Culturally, landmarks appear as conventions that no one questions, but that give information to the uninitiated. For example, sitting at a restaurant and being served might seem like an obvious action, but in reality it is a convention of social commerce.

Potentially, one could imagine a large brain that would know the position and movement of all actors and with certitude describe a different state of the system—much as would a central, planned economy. However, the cost and logistical difficulties inherent to such a system make it more of a thought experiment, rather than a viable outcome.

Third, cooperation problems involve a measure of trust in shared action and are the most difficult problems to solve. People should not trust one another, but they often do. Cooperation hinges upon the notion that people want to believe that there is a relationship between accomplishment and reward. Surowieki believes that societies can only operate if people cooperate, often with their own self-interest in mind, and make sure that the “rules of the game” (p.118) are followed. For example, in protection of the transactional system of trade, people will sometimes punish and reward behaviors that are aligned with the system, so-called “prosocial behavior.”

Capitalism is one type of transactional based system which mediates cooperation problems by playing into people’s notions of games and exchange (p.118). Capitalism is imbued with an impersonal mode of interaction, which Karl Marx termed “money nexus.” According to Surowieki, capitalism gained a sense of historicity as the sum of transactions created accumulated wealth and, in turn, a greater sense of purpose. In that regard, capitalism broke the traditional kinship relationships that hinged on lineage and common background.

Cooperation problems are solved by people performing irrational acts (behaviors that are not necessarily in their self-interest) such that in the cooperation of the actor, the structure from which arises the interaction is upheld. For example, it is in everyone’s self interest to cheat on taxes. However, year after year the federal budget still maintains a healthy stock of tax impounds.

In order to explain this behavior, Surowieki describes three cornerstone beliefs that make cooperation possible in the case of political governance. First, people have to trust that there are some good people who will cooperate. Second, they have to trust that the collective political body will perform actions that benefit everyone. Third, the political body must be able to punish those who have done wrong and protect the innocent.

Attributes of a Wise Crowd

Individuals within groups tend to fall into two camps, one that leads to imitation and another that makes decisions in a “herding” fashion (p.46). Imitation, according to Surowieki, is related to how group members view one another and is a rational response to our own cognitive limits. Pattern recognition plays a part in making sense of behavior. Sometimes, imitation can lead to others giving into a pattern and lead to “cascading” behavior (p.53), which usually occurs in minor decisions (p.63). Moreover, people tend to over-emphasize their ability to resolve easier problems than harder ones, and they tend to be overconfident. They overestimate their ability, knowledge, and decision making prowess.

More abstractly, the information cascade can be described in terms of systems dynamics, in which actors create will actions that cause signals to be given to others who have not yet made their decisions. When people follow the information leader simply because they were there first, this information becomes entrenched and “locked in” (p.56) the system. Still, “many people independently choose their action based on their own signals without observing the actions of others.” (p.55) One way to prevent information cascades is to make simultaneous decisions among several related choices.

With this in mind, Surowieki attempts to describe four main characteristics that enable individuals to make choices which are collectively empowering and intelligent.

First, diversity of information means that everyone is able to express their private information, or tacit information, that makes them unique. Diversity, according to James March, adds potential perspectives that group members could not have discovered on their own. Mixed intelligence within a group is always better than a too-intelligent group.

Second, independence of decision means that a group member is able to make their own decisions out of free will and without the interference of those around them. Within small groups, this independence is particularly difficult, given the lack of feedback from group members (p.182). Small groups, in particular, form the basis of juries, corporate boards, and cliques. Another potential problem is the tendency for the most prominent voice to shape the others and in effect cause the group to think alike. Groupthink is a very real problem that arises when there is no viable dissent or when information is not circulated throughout the group. Not surprisingly, an agenda can serve to bring together voices and guide discussions.

A round of divergent opinions in a small group can sometimes lead to a polarization of opinions. Group polarization is not well understood but is somewhat related to how people relate to one another and make comparisons. As more opinions are known, then people will form into subgroups that compete with one another. People with strong opinions are likelier to be able to express those ideas and in effect gather allies during small group proceedings. This is the way that juries reach a verdict and corporate board move about their business.

Third, decentralization within a group avoids hierarchical, well-structured arrangements, where people can use their specialization and local knowledge within decision-making. Surowieki gives the example of Jack Welch of GE who was a proponent of diverse perspectives that avoided rigid structure and embraced multidisciplinary approaches (p.211).

Corporations are emergent entities within the capitalist system that coordinate work and ease distribution of goods. They have “plans, commands, and controls … to accomplish their goals” (p.195) but due to their top-down nature, they are built to hide information (p.209). Surowieki believes that the traditional corporation constrains individual relations and information flow in order to advance the goals of the company. Neatly tucked within the folds of the boss/worker relationship is an uneasy conversation about whether or not the goals of the company are being met. This corporate structure reinforces the lack of flexibility that traditional companies often face.

The case of the forager bee and the hive are used as an example of how decentralization works. Bees forage for nectar without knowledge of where to look for food, but nevertheless, still manage to return to the hive and advertise by a “wiggle dance” (p.26) the location and abundance of food. How does the hive benefit? Simply put, by casting as wide a range of possible paths for bees to do their work. The case for decentralization rests with many bees working simultaneously in their own self-interest.

Fourth, aggregation is a mechanism through which individual decisions can be brought into a collective expression. Surowieki gives the example of decision markets where rational actors trade in the beliefs of the relative value of an item, like the Iowa Electronic Market (IEM) of presidential elections or the Hollywood Stock Exchange (HFX) for actors and movies. Surowieki believes that corporations have not yet tapped the potential of decision markets, and that strategy decisions could be made more flexible with more collective inputs, rather than the sole input of one key decision maker. Corporations, such as Eli Lilly and Hewlett Packard, use decision markets to take the pulse of a particular market segment and begin to form strategy.

Conclusion

The Wisdom of Crowds is a very detailed book which on first read might seem to be tangential. But then again, this is the nature of diffuse, divergent information. It is difficult to know what is reliable, what is important, or even what is meaningful. Therein lays the domain of collective wisdom. Because groups are merely the sum of their parts, one central lesson from The Wisdom of Crowds is that by “cast[ing] our net as widely as possible” (p.276) with a divergent set of individuals, groups can tap into the hidden wisdom of localized knowledge for the greater good. Businesses can gain tremendous insight into their markets and change themselves. Collective decision making is a direct challenge to our widely held notions of “leadership, power, and authority” (p.281), and, as such, if the corporation is to remain a viable entity in the Internet age, it must embrace some of the attributes of the “wise crowd.”

Advertisements
Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: