THE WISDOM OF CROWDS
July 7, 2004
A new book by James Surowiecki, business columnist for the New Yorker, explores the idea that groups of people are often smarter than the smartest among them. This concept, also called "collective wisdom," was first introduced by Francis Galton, a British scientist.
Galton attended a county fair and observed a weight guessing contest. He assumed that 800 people would not be able to accurately guess the weight of an ox, but the crowd's guess -- 1,197 pounds -- was just one pound off of the real weight, 1,198 pounds.
Surowiecki found that four conditions must be met for a crowd to make wise decisions:
- Diversity of opinion: Each person must have some private information.
- Independence: People's opinions are not affected by the opinions of those around them.
- Decentralization: People can draw on local knowledge and experience.
- Aggregation: Some mechanism exists to turn those private judgments into one collective decision.
Large crowds do not always come to wise conclusions, though. Instances of commercial hysteria, like the recent high-tech start-up bubble, often occur because members of the group are often pressured by outside forces to abandon their personal knowledge and experienced judgment.
Source: Martin Levin, "The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies, and Nations," Weekly Standard, June 7, 2004.
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