The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations by James Surowiecki

From the Publisher

In this fascinating book, New Yorker business columnist James Surowiecki explores a deceptively simple idea: Large groups of people are smarter than an elite few, no matter how brilliant–better at solving problems, fostering innovation, coming to wise decisions, even predicting the future.

With boundless erudition and in delightfully clear prose, Surowiecki ranges across fields as diverse as popular culture, psychology, ant biology, behavioral economics, artificial intelligence, military history, and politics to show how this simple idea offers important lessons for how we live our lives, select our leaders, run our companies, and think about our world.

The Washington Post - Eric Klinenberg

… Surowiecki, who has fashioned a fascinating financial column in the New Yorker by using cutting-edge social science research to interpret market life, finds ample evidence to support his argument. He writes with command and flair, weaving together entertaining anecdotes from popular culture and business history and accessible summaries of arcane theoretical debates in behavioral economics, sociology and psychology. The Wisdom of Crowds is both intellectually challenging and a pleasure to read.

Publishers Weekly

While our culture generally trusts experts and distrusts the wisdom of the masses, New Yorker business columnist Surowiecki argues that "under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them." To support this almost counterintuitive proposition, Surowiecki explores problems involving cognition (we're all trying to identify a correct answer), coordination (we need to synchronize our individual activities with others) and cooperation (we have to act together despite our self-interest). His rubric, then, covers a range of problems, including driving in traffic, competing on TV game shows, maximizing stock market performance, voting for political candidates, navigating busy sidewalks, tracking SARS and designing Internet search engines like Google. If four basic conditions are met, a crowd's "collective intelligence" will produce better outcomes than a small group of experts, Surowiecki says, even if members of the crowd don't know all the facts or choose, individually, to act irrationally. "Wise crowds" need (1) diversity of opinion; (2) independence of members from one another; (3) decentralization; and (4) a good method for aggregating opinions. The diversity brings in different information; independence keeps people from being swayed by a single opinion leader; people's errors balance each other out; and including all opinions guarantees that the results are "smarter" than if a single expert had been in charge. Surowiecki's style is pleasantly informal, a tactical disguise for what might otherwise be rather dense material. He offers a great introduction to applied behavioral economics and game theory. Agent, Chris Calhoun. (On sale May 18) Forecast: While armchair social scientists (e.g., readers of The Tipping Point) will find this book interesting, college economics, math, statistics and finance students could really profit from spending time with Surowiecki. National author promos and print ads will attract buyers. Copyright 2004 Reed Business Information.

Library Journal

According to Surowiecki, the "simple but powerful truth" at the heart of his book is that "under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them." Surowiecki, a staff writer for the Financial Page of The New Yorker, analyzes the concept of collective wisdom and applies it to various areas of the social sciences, including economics and politics. The author examines three kinds of problems involved in collective wisdom: cognition, or problems with definite solutions; coordination, where members of a group figure out how to coordinate their behavior with one another; and cooperation, involving getting self-centered individuals to work together. Part 1 studies the three problems (cognition, coordination, and cooperation) and the factors it takes for the crowd to be wise (diversity, dependence, and a specific type of decentralization). Part 2 contains case studies illustrating both success and failure of collective intelligence. Surowiecki also draws upon studies and works of past theorists of collective intelligence, including Charles Mackay's landmark Extraordinary Popular Delusions and the Madness of Crowds. This work is an intriguing study of collective intelligence and how it works in contemporary society. Recommended for larger public and academic library collections.-Lucy Heckman, St. John's Univ. Lib., Jamaica, NY Copyright 2004 Reed Business Information.

Soundview Summary - Soundview Executive Book Summaries

Western society is focused on the power of the individual mind, but under the right circumstances, groups can actually make better decisions than even the smartest person within them. When individuals in a crowd are appropriately diverse, independent and decentralized, their aggregated decisions are surprisingly on point. With this knowledge, the power of groups can be used to find unknown answers and determine how to coordinate behavior and cooperate in all areas of society. Our everyday activities, our government and our economy are all affected by the power of crowds, and when things go awry, it is often because one of the key elements of an intelligent crowd is missing or underexpressed.

In The Wisdom of Crowds, journalist James Surowiecki explores the underlying implications of the idea that large groups of people are smarter than an elite few, no matter how brilliant.

Tapping Into Crowds
In 1906, British scientist Francis Galton watched a weight-judging competition at a livestock fair. People bet on the weight of an ox after it was slaughtered and dressed. Butchers, farmers and nonexperts all bought tickets and guessed.

Galton borrowed the tickets after the competition and calculated the mean of the 787 guesses — the collective wisdom of the group. The crowd guessed 1,197 pounds. After the ox was slaughtered and dressed, it weighed 1,198 pounds. Galton had discovered that, under the right circumstances, groups are remarkably intelligent and often smarter than the smartest people in them, especially if individual guesses are aggregated and averaged. The group is not better than every single person, and some individuals will be smarter the more incentive they receive, such as in the stock market. But it is rare that the same person will be right as consistently as the group.

Game Show Contestants
On the TV show Who Wants to be a Millionaire, contestants answered a series of four-answer, multiple-choice questions. When stumped, they could have two choices of answers removed, call a smart friend or poll the audience. The smart people were right 65 percent of the time, but the studio audience was right 91 percent of the time.

Cognition problems can also have answers that are unknown or in the future. For example:
Within 21 minutes of the 1986 Challenger explosion, the stock price of Morton Thiokol had fallen well below that of the other three companies involved in building the shuttle. Six months later, the cause of the explosion was determined to be the O-ring seals on the booster rockets made by Thiokol.

The Iowa Electronic Markets (IEM), made up of about 800 people buying and selling futures on different election outcomes, is often more accurate than national polls.

Futures markets like the IEM exist for Hollywood box office receipts, news and sports. They work because they have the fundamental characteristics — diversity, independence and decentralization — that are key to making good predictions.

The Difference Difference Makes

Ransom E. Olds started selling cars in 1899 and prospered by selling the curved-dash Olds: a car for the middle class. With amazing marketing, he did quite well and sold more cars than any other U.S. manufacturer in 1903. Olds had fierce competition from hundreds of automobile companies. There was no standard, so they were peddling a huge array of vehicles with different sizes, shapes and power generators. Toward the end of the decade, most contenders began to fade, but innovators like Cadillac and Ford stayed. By World War I, Olds had been bought by General Motors.

The histories of most new industries are similar — a profusion of alternatives in the early days and a winnowing out of the winners who effectively choose the prevailing technologies. It seems inefficient, but the diversity of ideas allows meaningful differences among early ideas, not just minor variations on the same concept. The system works when it can recognize losers and kill them off quickly.

It is not enough to generate a diverse set of possible solutions. The crowd also needs to be able to distinguish the good from the bad. Diversity adds perspectives that would otherwise be absent and makes a group better at solving problems. In fact, grouping only smart people together might not be that good an idea because they tend to resemble each other in skills. Adding people who know less but have different skills improves the group's performance. A group with diverse knowledge and skills will almost always make a better decision than one or two experts. Copyright © 2005 Soundview Executive Book Summaries

Kirkus Reviews

Multitudes are generally smarter than their smartest members, declares New Yorker writer Surowiecki. With his theory of the inherent sagacity of large groups, Surowiecki seems to differ with Scottish journalist Charles Mackay's 1841 classic, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, which dealt with such stupidities as the South Sea Bubble, tulip-mania, odd styles of whiskers, and dueling. Our 21st-century author admits that there are impediments and constraints to the intelligence of large groups, usually problems of cognition, coordination, and cooperation. A group must have knowledge, Surowiecki states: not extensive knowledge, but rudimentary comprehension of basic fact with harmonized behavior by individual members. Finally, individuals must go beyond self-interest for the good of all. That's how capital markets and Google's algorithm work, and how science isolated the SARS virus. Lack of the basics leads to traffic jams, the dot-com crash, and the Columbia shuttle mission disaster. If crowds are inherently clever, a reader may be prompted to ask, just how smart is a flock of turkeys? Not very smart, certainly, but smarter, Surowiecki would assert, than the smartest turkey individual. A school of herring is going to be more intelligent than any single fish in it. All this may be less than encouraging to hot-stock analysts, high-profile CEOs, and others who sell their personal expertise for a high salary, but the author argues persuasively that collective wisdom works better than the intelligent fiat of any individual. His wide-ranging study links psychology and game theory, economics and management theory, social science and public policy. And it advancesMackay's report from times when, as the Scot put it, "knavery gathered a rich harvest from cupidity."Valuable insights regarding information cascades, crowd herding, cognitive collaboration, and group polarization. There is some individual, independent wisdom to be found here.

What People Are Saying

Malcolm Gladwell
The Wisdom of Crowds is dazzling. It is one of those books that will turn your world upside down. It's an adventure story, a manifesto, and the most brilliant book on business, society, and everyday life that I've read in years.
—author of The Tipping Point

Po Bronson
This book should be in every thinking businessperson's library. Without exception. At a time when corporate leaders have shown they're not always deserving of our trust, James Surowiecki has brilliantly revealed that we can trust each other. That we count. That our collective effort is far more important than the lofty predictions of those CEO-kings we have worshipped for too long.
—author of What Should I Do With My Life?

Kenneth Arrow
It has become increasingly recognized that the average opinions of groups is frequently more accurate than most individuals in the group. As a special case, economists have spoken of the role of markets in assembling dispersed information. The author has written a most interesting survey of the many studies in this area and discussed the limits as well as the achievements of self-organization.
—winner of the Nobel Prize in Economics and Professor of Economics (Emeritus), Stanford University

Details from Seller

• ISBN: 0385721706
• Publisher: Knopf Doubleday Publishing Group
• Pub. Date: August 2005
• Condition:

Comments from the Seller: 2005 Paperback Good Book may contain highlighting, underlining, and may have some cover stickering and wear. Orders usually processed in 24 hours. 100% satisfaction guaranteed.

• Interviews & Essays
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Interviews & Essays

This was no party trick. Instead, the jellybean-counting experiment demonstrated something I call the wisdom of crowds: under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them. A group does not need to be dominated by exceptionally intelligent people in order to be smart. Even if most of the people within a group are not especially well-informed or rational, collectively they can still be brilliant.

The wisdom of crowds is at work all around us, although it's easy to miss. It helps explain why the economy works well at getting people what they want as cheaply as possible, even though no one is in charge of the economy as a whole. It helps explain why people in a healthy society cooperate with each other by doing things like paying taxes and contributing to charities. And it explains why, if you're trying to solve a problem with a definitive answer, you're better off with the group than with even the most well-informed expert.

Take the show Who Wants to Be a Millionaire. When a contestant on the show is stumped by a question, he can ask the audience for help or consult someone he's designated as an expert. The experts do a reasonable job: they get the answer right 65 percent of the time. But the audience is close to perfect: it gets the answer right 91 percent of the time. Similarly, at the race track, the final odds on a race reliably predict the race's order of finish (that is, the favorite wins most often, the horse with the second-lowest odds wins second most often, and so on) and also uncannily predict how likely it is that a horse will win. In other words, horses that run at 3-to-1 odds win just about a quarter of the time. The Hollywood Stock Exchange -- a kind of online stock market where people can wager on how movies will do at the box office -- has become a more reliable forecaster of ticket sales than any other method. And in the stock market, for all of its crazy swings, it's very difficult for even the best money managers to do better than the market as a whole.

So what's the catch? Simply this: not all crowds are wise. Groups can only be smart if they're made up of people with diverse information who are making decisions relatively independently. Groups that are too much alike get stuck because they don't have access to enough information and because they favor harmony over dissent. The wisdom of crowds isn't about consensus or compromise, so groups in which everyone agrees are likely to be less intelligent. Similarly, when people are worried too much about what others think, groups get dumber, too. The real paradox of the wisdom of crowds is that the way for the group to be smart is for each person to act as an individual. When they don't -- like during a stock-market bubble, where people buy stocks only because they think they can dump them on someone else -- groups go wrong.

Wise crowds, then, are diverse, independent, and decentralized. As it happens, that means that one place that is tailor-made for the wisdom of crowds is the Internet. Because no one is in charge of the Net, and because it features a cacophony of diverse voices, with no one voice being loud enough to drown out others, the Internet's collective intelligence is potentially immense. One place you can see this is in the plethora of rating systems for everything from consumer electronics to -- as on this site -- books. Until recently, there was no way to aggregate the judgments of readers or TV watchers across the country, let alone the world. So most of the information a person got came from a relatively small circle of friends and acquaintances. Today, we can draw on a far more diverse and eclectic pool of information. To the degree that we do so, our decisions will be better as a result.

The most striking example of the wisdom of crowds on the Net is, of course, Google. Google is able to routinely survey 4.3 billion web pages and pick exactly the one that has the information that you are looking for. And it does this by relying on the collective intelligence of the Web. Roughly speaking, Google finds the right pages by asking Web page producers to vote on which other pages are most worthwhile, with each link to a page counting as a vote. Google is a republic, not a pure democracy; the more people that have linked to a given page, the more influence that page has on the group's final decision. But the principle is fundamentally democratic -- let the masses decide. Far more often than not, they decide wisely.

Most of us, whether as voters or investors or consumers or managers, believe that valuable knowledge is concentrated in a very few hands (or, rather, in a very few heads). We assume that the key to solving problems or making good decisions is finding that one right person who will have the answer. But Jack Treynor's jellybean experiment and Google's success should teach us a different lesson. When it comes to problem-solving, stop looking for that one right person. Ask the crowd instead. Chances are, it knows. James Surowiecki

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