The Wisdom Of Crowds by James Surowiecki

13 Aug

Surowiecki presents a nice approach to trusting “the crowd”, based on some interesting research.

His main proposition is that a group can come to a wiser decision than an individual if three conditions hold: diversity, independence and decentralization. He breaks such decisions into three categories: cognition, coordination and cooperation problems, giving examples of each.

– Diversity means that people have different experience, knowledge, and approaches and so add more little bits of wisdom to the crowd.

– Independence means that each member makes their own decision rather than being influenced by the decision of others.

– Decentralisation is talking about the idea that knowledge is spread so that those closer to a problem have the knowledge to solve it.

Then, aggregating the individual decisions gives an overall wise choice. Note that just because the group comes to a wise conclusion it doesn’t mean that the individuals within the group will. In fact, for a group to perform better it needs opposing ideas so that the consensus of the group is challenged and so strengthened or replaced.

The chapter on working in small teams covers this and other issues of influence within a group. I found this practical: e.g. the idea that when a group meets to come to a decision the first to speak will usually frame the possible solutions and thus limit possible outcomes. Also the one with most airtime is more likely to have a larger influence on the final decision.

He focuses on the financial markets and although a lot of what he said was conjecture, his conclusions backed up why around 80% of fund managers under perform the index they aim to beat.

His discussion about how capitalism is based on trust was a nice new paradigm. He looked at the example of how the Quakers did so well – they were trustworthy in pricing, quality of goods and upholding agreements. Funnily they did better than everyone else and eventually their competitors had to follow their business model, bringing us closer to the system we have today.

While Surowiecki presents a convincing case, the book is so filled with non-sequiteurs and a baseless view that the US is somehow fundamentally different to every other society it’s not always easy to take him seriously. Phrases along the lines of “it is clear that” or “you can’t disagree with the view” didn’t help.

That said, I valued what I learnt and will use the ideas in the future.

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6 Responses to “The Wisdom Of Crowds by James Surowiecki”

  1. Sword of Apollo August 23, 2012 at 5:28 am #

    I think that the critical element of the three conditions is independent thought, judgment and decision-making by each participant. At a fundamental level, everyone has to think by himself. He can benefit from the exchange of information with other thinking individuals, but he can’t blindly submit his brain to others, or else you get “group-think.” This element can make a single thinking individual wiser than a crowd of unthinking “yes-men.”

  2. 5i5i August 23, 2012 at 10:51 am #

    And this is the nub of people’s objections to Surowiecki’s thesis. Can’t I be wiser than an unthinking mob? We certainly like to think so.

    Three questions:
    a) wiser from who’s perspective?
    b) our knowledge is always incomplete so can our viewpoint be perfect, or objective truth?
    c) are there are some areas where we have to submit to others as we just don’t have the capacity to consider the justification of each and every piece of knowledge we use?

Trackbacks/Pingbacks

  1. Logical Fallacies II – Evolved To Be Illogical? « unfebuckinglievable - September 7, 2012

    […] This is clearly argued in James Surowiecki’s book The Wisdom Of Crowds (reviewed by me here). […]

  2. Tim Harford – Adapt (Lecture) « unfebuckinglievable - October 29, 2012

    […] rather than do the usual conforming to keep the peace and fit in, it’s worth speaking up to give an alternative opinion. Even if your view is rubbish you’ll at least be emboldening another member to put forward […]

  3. Collective Intelligence « unfebuckinglievable - December 10, 2012

    […] interesting to contrast his work with the principles in James Surowiecki’s book The Wisdom Of Crowds which talks about bringing the knowledge of individuals to bear on a problem. He claims that wise […]

  4. Beware Crowds – Logical Fallacy #58 | unfebuckinglievable - March 8, 2013

    […] there are some valid arguments for the wisdom of crowds it does not apply in all circumstances; James Surowiecki asserts that a crowd decision is only wise […]

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