The Wisdom of Crowds
Author: James Surowiecki
ISBN: 0-385-72170-6
APA Style Citation:
Surowiecki, J. (2004). The Wisdom of Crowds. New York, New York: Random House.
Author: James Surowiecki
ISBN: 0-385-72170-6
APA Style Citation:
Surowiecki, J. (2004). The Wisdom of Crowds. New York, New York: Random House.
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Book Description
Sir Francis Galton was one of the earliest observers of human behavior to recognize the benefits of the group over the individual when making decisions. Galton once attended a county fair in which there was a competition to judge the weight of livestock. Many people entered the competition (both experts and non-experts). Galton’s attention to human behavior caused him to ask for the votes because he believed that the “average voter” was capable of very little in comparison to experts such as butchers or farmers. Galton averaged the 787 votes and found that the groups’ guess for how much the cattle would weigh after being slaughtered and dressed was 1,197 pounds and the actual weight was 1,198 pounds. Galton was shocked at the accuracy of the group, which was far better than even the most experienced “expert”.
James Surowiecki summarizes the work of many social psychologists that recognize the advantages of the group over the individual in The Wisdom of Crowds. When attempting to arrive at the correct answer, Surowiecki states that trying to find smart people will not lead you astray, but trying to find the smartest person will. No one person can have all of the knowledge that is held by a group. In part, this is why scientists must rely on the research of others that they had no hand in conducting. They want to grow their knowledge base in a given area and it is impossible to be an expert on everything, even in a fairly narrow field of study. Collaboration makes individuals more productive and should lead to a better outcome than any single individual working alone, even if that individual is considered to be an expert. Although research supports Surowiecki’s conclusion, in day-to-day life, we place a high degree of confidence in experts. We have a tendency to overestimate their accuracy and exhibit an overdependence on experts for advice and recommendations.
A group generally holds a more accurate picture in their collective brain than any one individual. An example of this is ‘the line’ in betting, as ‘the line’ moves we have a good idea that the odds fairly accurately reflect the outcome of a given situation, such as the result of a horse race or basketball game. Those who accept bets do not make money off of beating ‘the line’ because they cannot repeat this consistently; they make money off of the fees they charge for handling the wagers. The group will be more accurate than the individual more times than not. Presidential polls (such as the IEM) are within 1.37% of the actual outcome because they use sampling sizes of roughly 1,500 people which reflect the wisdom of a group.
Surowiecki indicates that many businesses place too much of an emphasis on a strong CEO. Often times, the Board of Directors for large companies defer to the CEO because of their prestige, expertise, or perceived level of confidence. Even if these individuals are experts in a given field, the decision-making of the group on the whole would be more accurate than that of even some of the most esteemed CEOs. Even well known and respected CEO’s like Jack Welch and Steve Jobs made poor decisions during their tenure, costing their respective businesses hundreds of millions of dollars. Often times however, the Board of Directors uses the availability heuristic and only recalls the times in which the CEO made a great decision and let those other poor decisions fall by the wayside. The Board may be better served by making the decision themselves, especially if there are differing opinions in the group because the consideration of multiple perspectives should lead to a more well-balanced discussion of the merits or detriments of any given decision.
By the same token, money managers use the self-serving bias to explain the times in which they made a good deal of money in the market. They attribute this success to their own knowledge of the market rather than to luck or to the cyclical nature of markets. This tends to lead to overconfidence on the part of the money managers who then underestimate the risk to their clients of losing money in the market. If these same money managers instead watched the market it would likely reflect the mood of the nation and better reflect what is actually happening in the economy. Traders by nature are irrational when the market is non-emotional and more often correct. We tend to recall instances such as Joseph Kennedy predicting the market crash in 1929 and making a fortune while forgetting all of the instances in which the will of the people accurately predicted what would happen in the markets. It is unlikely that a single individual will beat the market time and time again, yet this is just what we expect when investing our money with an ‘expert’ money manager.
Diversity in a group can eliminate some of the forces of groupthink by adding differing opinions and potentially posing alternative solutions. The more cohesive a group, the more likely they will experience groupthink and rationalize counterarguments to their beliefs. There is a lack of dissent in many groups and assumed consensus often leads to poor decisions. Surowiecki recalls the experiments completed by Solomon Asch in which a group of students attempted to assess the length of different lines when compared to a test line. Even when others gave obviously incorrect responses, 40% of the participants went along at some point. Conformity can be seen in many aspects of society such as fashion, vocabulary, and the style of cars and houses. Even if one does not think they are a “conformist” it takes only a look back at old pictures to realize that we often make poor choices in order to “fit in” with the group. A professor at Harvard taught a class at the top of a long narrow staircase, which often created a bottleneck between classes. Students would be attempting to come up and down at the same time and it was not possible for two people to pass at once on the stairwell. The professor asked one class to use one staircase for coming and another for going, other classes followed and the problem was resolved. This unstated conformity leads to positive or potentially dire outcomes depending on the situation in which we blindly follow others. We often assume that others know what they are doing and follow their lead without regard for whether or not they are correct. When we do conform, we want other people to as well. We want others to wait to get off an airplane in the correct order as we stand at our seat, we want them to wait their turn in the grocery line and we want them to pay their taxes or get caught. The good news, according to Surowiecki is that mostly when we do what the crowd does, we will be correct.
This may be a beneficial book for the introductory psychology classrooms, as some major studies discussed in introductory textbooks focus on the potentially negative outcomes of crowds, while The Wisdom of the Crowd emphasizes the more positive aspects of group interaction.
Other Related Resources
Ted Talk: James Surowiecki
https://www.ted.com/talks/james_surowiecki_on_the_turning_point_for_social_media
BBC article: The Wisdom of the Crowd: Myths and Realties
http://www.bbc.com/future/story/20140708-when-crowd-wisdom-goes-wrong
Forbes Magazine article: Stop Relying on Experts for Innovation
http://www.forbes.com/sites/forbesleadershipforum/2013/10/23/break-out-of-relying-on-experts-for-innovation-a-conversation-with-karim-lakhani/
Newsweek article: The Case Against Experts
http://www.newsweek.com/case-against-experts-73267
Psychological Figures and Concepts:
Solomon Asch: Conformity
Sir Francis Galton
Irving Janis: Groupthink
Algorithm
Availability Heuristic
Bystander Effect
Collaboration vs. Competition
Confirmation Bias
Decision Making
Deindividuation
Group Polarization
Minority Opinion
Overconfidence
Risky Shift
Self-Serving Bias
Social Loafing
Sir Francis Galton was one of the earliest observers of human behavior to recognize the benefits of the group over the individual when making decisions. Galton once attended a county fair in which there was a competition to judge the weight of livestock. Many people entered the competition (both experts and non-experts). Galton’s attention to human behavior caused him to ask for the votes because he believed that the “average voter” was capable of very little in comparison to experts such as butchers or farmers. Galton averaged the 787 votes and found that the groups’ guess for how much the cattle would weigh after being slaughtered and dressed was 1,197 pounds and the actual weight was 1,198 pounds. Galton was shocked at the accuracy of the group, which was far better than even the most experienced “expert”.
James Surowiecki summarizes the work of many social psychologists that recognize the advantages of the group over the individual in The Wisdom of Crowds. When attempting to arrive at the correct answer, Surowiecki states that trying to find smart people will not lead you astray, but trying to find the smartest person will. No one person can have all of the knowledge that is held by a group. In part, this is why scientists must rely on the research of others that they had no hand in conducting. They want to grow their knowledge base in a given area and it is impossible to be an expert on everything, even in a fairly narrow field of study. Collaboration makes individuals more productive and should lead to a better outcome than any single individual working alone, even if that individual is considered to be an expert. Although research supports Surowiecki’s conclusion, in day-to-day life, we place a high degree of confidence in experts. We have a tendency to overestimate their accuracy and exhibit an overdependence on experts for advice and recommendations.
A group generally holds a more accurate picture in their collective brain than any one individual. An example of this is ‘the line’ in betting, as ‘the line’ moves we have a good idea that the odds fairly accurately reflect the outcome of a given situation, such as the result of a horse race or basketball game. Those who accept bets do not make money off of beating ‘the line’ because they cannot repeat this consistently; they make money off of the fees they charge for handling the wagers. The group will be more accurate than the individual more times than not. Presidential polls (such as the IEM) are within 1.37% of the actual outcome because they use sampling sizes of roughly 1,500 people which reflect the wisdom of a group.
Surowiecki indicates that many businesses place too much of an emphasis on a strong CEO. Often times, the Board of Directors for large companies defer to the CEO because of their prestige, expertise, or perceived level of confidence. Even if these individuals are experts in a given field, the decision-making of the group on the whole would be more accurate than that of even some of the most esteemed CEOs. Even well known and respected CEO’s like Jack Welch and Steve Jobs made poor decisions during their tenure, costing their respective businesses hundreds of millions of dollars. Often times however, the Board of Directors uses the availability heuristic and only recalls the times in which the CEO made a great decision and let those other poor decisions fall by the wayside. The Board may be better served by making the decision themselves, especially if there are differing opinions in the group because the consideration of multiple perspectives should lead to a more well-balanced discussion of the merits or detriments of any given decision.
By the same token, money managers use the self-serving bias to explain the times in which they made a good deal of money in the market. They attribute this success to their own knowledge of the market rather than to luck or to the cyclical nature of markets. This tends to lead to overconfidence on the part of the money managers who then underestimate the risk to their clients of losing money in the market. If these same money managers instead watched the market it would likely reflect the mood of the nation and better reflect what is actually happening in the economy. Traders by nature are irrational when the market is non-emotional and more often correct. We tend to recall instances such as Joseph Kennedy predicting the market crash in 1929 and making a fortune while forgetting all of the instances in which the will of the people accurately predicted what would happen in the markets. It is unlikely that a single individual will beat the market time and time again, yet this is just what we expect when investing our money with an ‘expert’ money manager.
Diversity in a group can eliminate some of the forces of groupthink by adding differing opinions and potentially posing alternative solutions. The more cohesive a group, the more likely they will experience groupthink and rationalize counterarguments to their beliefs. There is a lack of dissent in many groups and assumed consensus often leads to poor decisions. Surowiecki recalls the experiments completed by Solomon Asch in which a group of students attempted to assess the length of different lines when compared to a test line. Even when others gave obviously incorrect responses, 40% of the participants went along at some point. Conformity can be seen in many aspects of society such as fashion, vocabulary, and the style of cars and houses. Even if one does not think they are a “conformist” it takes only a look back at old pictures to realize that we often make poor choices in order to “fit in” with the group. A professor at Harvard taught a class at the top of a long narrow staircase, which often created a bottleneck between classes. Students would be attempting to come up and down at the same time and it was not possible for two people to pass at once on the stairwell. The professor asked one class to use one staircase for coming and another for going, other classes followed and the problem was resolved. This unstated conformity leads to positive or potentially dire outcomes depending on the situation in which we blindly follow others. We often assume that others know what they are doing and follow their lead without regard for whether or not they are correct. When we do conform, we want other people to as well. We want others to wait to get off an airplane in the correct order as we stand at our seat, we want them to wait their turn in the grocery line and we want them to pay their taxes or get caught. The good news, according to Surowiecki is that mostly when we do what the crowd does, we will be correct.
This may be a beneficial book for the introductory psychology classrooms, as some major studies discussed in introductory textbooks focus on the potentially negative outcomes of crowds, while The Wisdom of the Crowd emphasizes the more positive aspects of group interaction.
Other Related Resources
Ted Talk: James Surowiecki
https://www.ted.com/talks/james_surowiecki_on_the_turning_point_for_social_media
BBC article: The Wisdom of the Crowd: Myths and Realties
http://www.bbc.com/future/story/20140708-when-crowd-wisdom-goes-wrong
Forbes Magazine article: Stop Relying on Experts for Innovation
http://www.forbes.com/sites/forbesleadershipforum/2013/10/23/break-out-of-relying-on-experts-for-innovation-a-conversation-with-karim-lakhani/
Newsweek article: The Case Against Experts
http://www.newsweek.com/case-against-experts-73267
Psychological Figures and Concepts:
Solomon Asch: Conformity
Sir Francis Galton
Irving Janis: Groupthink
Algorithm
Availability Heuristic
Bystander Effect
Collaboration vs. Competition
Confirmation Bias
Decision Making
Deindividuation
Group Polarization
Minority Opinion
Overconfidence
Risky Shift
Self-Serving Bias
Social Loafing
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