The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, first published in 2004, is a book written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group. The book presents numerous case studies and anecdotes to illustrate its argument, and touches on several fields, primarily economics and psychology. Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... James Surowiecki James Michael Surowiecki (b. ... An anecdote is a short tale narrating an interesting or amusing biographical incident. ... Face-to-face trading interactions on the New York Stock Exchange trading floor. ... Psychological science redirects here. ...

The opening anecdote relates Francis Galton's surprise that the crowd at a county fair accurately guessed the weight of an ox when their individual guesses were averaged (the average was closer to the ox's true butchered weight than the estimates of most crowd members, and also closer than any of the separate estimates made by cattle experts).^[1] This article does not cite any references or sources. ...

The book relates to diverse collections of independently-deciding individuals, rather than crowd psychology as traditionally understood. Its central thesis, that a diverse collection of independently-deciding individuals is likely to make certain types of decisions and predictions better than individuals or even experts, draws many parallels with statistical sampling, but there is little overt discussion of statistics in the book. Crowd psychology is a branch of social psychology. ... Sampling is that part of statistical practice concerned with the selection of individual observations intended to yield some knowledge about a population of concern, especially for the purposes of statistical inference. ...

Its title is an allusion to Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds, published in 1841. Charles Mackay (1814 – 1889) was a British poet, journalist, and song writer. ... Extraordinary Popular Delusions and the Madness of Crowds is a popular history of popular folly by Charles Mackay, first published in 1841. ... 1841 is a common year starting on Friday (link will take you to calendar). ...

Types of crowd wisdom

Surowiecki breaks down the advantages he sees in disorganized decisions into three main types, which he classifies as:

Cognition

Market judgment, which he argues can be much faster, more reliable, and less subject to political forces than the deliberations of experts, or expert committees.

Coordination

Coordination of behavior includes optimizing the utilization of a popular bar and not colliding in moving traffic flows. The book is replete with examples from experimental economics, but this section relies more on naturally occurring experiments such as pedestrians optimizing the pavement flow, or the extent of crowding in popular restaurants. He examines how common understanding within a culture allows remarkably accurate judgments about specific reactions of other members of the culture.

Cooperation

How groups of people can form networks of trust without a central system controlling their behavior or directly enforcing their compliance. This section is especially pro-free market.

Look up Market in Wiktionary, the free dictionary. ... Experimental economics is the use of experimental methods to evaluate theoretical predictions of economic behaviour. ... A natural experiment is a naturally occurring instance of observable phenomena which approach or duplicate a scientific experiment. ... This article or section does not cite its references or sources. ... For other uses, see Culture (disambiguation). ... Trust is the belief in the good character of one party, presumed to seek to fulfill policies, ethical codes, law and their previous promises. ... A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy...

Four elements required to form a wise crowd

Not all crowds (groups) are wise. Consider, for example, mobs or crazed investors in a stock market bubble. Refer to Failures of crowd intelligence (below) for more examples of unwise crowds. According to Surowiecki, these key criteria separate wise crowds from irrational ones: A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise and become overvalued by any measure of stock valuation. ...

Diversity of opinion

Each person should have private information even if it's just an eccentric interpretation of the known facts.

Independence

People's opinions aren't determined by the opinions of those around them.

Decentralization

People are able to specialize and draw on local knowledge.

Aggregation

Some mechanism exists for turning private judgments into a collective decision.

This article does not adequately cite its references or sources. ... Look up decision in Wiktionary, the free dictionary. ...

Failures of crowd intelligence

Surowiecki studies situations (such as rational bubbles) in which the crowd produces very bad judgment, and argues that in these types of situations their cognition or cooperation failed because (in one way or another) the members of the crowd were too conscious of the opinions of others and began to emulate each other and conform rather than think differently. Although he gives experimental details of crowds collectively swayed by a persuasive speaker, he says that the main reason that groups of people intellectually conform is that the system for making decisions has a systematic flaw. A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise and become overvalued by any measure of stock valuation. ...

Surowiecki asserts that what happens when the decision making environment is not set up to accept the crowd, is that the benefits of individual judgments and private information are lost, and that the crowd can only do as well as its smartest member, rather than perform better (as he shows is otherwise possible). Detailed case histories of such failures include:

Too homogeneous

Surowiecki stresses the need for diversity within a crowd to ensure enough variance in approach, thought process, and private information.

Too centralized

The Columbia shuttle disaster, which he blames on a hierarchical NASA management bureaucracy that was totally closed to the wisdom of low-level engineers.

Too divided

The U.S. Intelligence community failed to prevent the September 11, 2001 attacks partly because information held by one subdivision was not accessible by another. Surowiecki's argument is that crowds (of intelligence analysts in this case) work best when they choose for themselves what to work on and what information they need. (He cites the SARS-virus isolation as an example in which the free flow of data enabled laboratories around the world to coordinate research without a central point of control.)

The Office of the Director of National Intelligence and the CIA have created a Wikipedia style information sharing network called Intellipedia that will help the free flow of information to prevent such failures again.

Too imitative

Where choices are visible and made in sequence, an "information cascade"^[2] can form in which only the first few decision makers gain anything by contemplating the choices available: once past decisions have become sufficiently informative, it pays for later decision-makers to simply copy those around them. This can lead to fragile social outcomes.

Too emotional

Emotional factors, such as a feeling of belonging, can lead to peer pressure, herd instinct, and in extreme cases collective hysteria.

For further information about Columbias mission and crew, see STS-107. ... For other uses, see NASA (disambiguation). ... For other uses, see United States (disambiguation) and US (disambiguation). ... A sequential look at United Flight 175 crashing into the south tower of the World Trade Center The September 11, 2001 attacks (often referred to as 9/11—pronounced nine eleven or nine one one) consisted of a series of coordinated terrorist[1] suicide attacks upon the United States, predominantly... Intelligence (abbreviated or ) is the process and the result of gathering information and analyzing it to answer questions or obtain advance warnings needed to plan for the future. ... A fairly broad term for a person or tool with a primary function of information analysis, generally with a more limited, practical and short term set of goals than a researcher. ... Sars may refer to any of the following: Severe acute respiratory syndrome, commonly abbreviated as SARS Michael Sars, a Norwegian biologist, father of Georg Sars Georg Sars, a Norwegian biologist, son of Michael Sars Special Administrative Regions, commonly abbreviated as SARs Sars, Perm Krai, an urban settlement in Perm Krai... Seal of the United States Office Director of National Intelligence, an independent agency of the US government that is charged by law to assist the Director of National Intelligence carryout its duties. ... The CIA Seal The Central Intelligence Agency (CIA) is an American intelligence agency, responsible for obtaining and analyzing information about foreign governments, corporations, and individuals, and reporting such information to the various branches of the U.S. Government. ... Wikipedia (IPA: , or ( ) is a multilingual, web-based, free content encyclopedia project, operated by the Wikimedia Foundation, a non-profit organization. ... Intellipedia/ODNI Logo Intellipedia is a series of three wikis that runs on JWICS, SIPRNet, and Intelink-U. They are used by the 16 agencies that comprise the United States intelligence community. ... It has been suggested that this article or section be merged into Informational Cascade. ... Peer pressure comprises a set of group dynamics whereby a group in which one feels comfortable may override personal habits, individual moral inhibitions or idiosyncratic desires to impose a group norm of attitudes and/or behaviors. ... The herding instinct in humans may have some connection with group behaviours in other animals The so-called herding instinct is a social tendency in humans to identify with and model many behaviors and beliefs after a larger group of individuals with whom they identify. ... Collective hysteria, or mass hysteria, is the sociopsychological phenomenon of the manifestation of the same hysterical symptoms by more than one person. ...

Is it possible to be too connected?

Surowiecki spoke on Independent Individuals and Wise Crowds, or Is It Possible to Be Too Connected?.

The question for all of us is, how can you have interaction without information cascades, without losing the independence that’s such a key factor in group intelligence?

He recommends:

• Keep your ties loose.
• Keep yourself exposed to as many diverse sources of information as possible.
• Make groups that range across hierarchies.

Tim O’Reilly^[1] and others also discuss the success of Google, wikis, blogging and Web 2.0 in the context of the wisdom of crowds. This article is about the corporation. ... Wiki wiki redirects here. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... On September 30, 2005, Tim OReilly wrote a piece summarizing his view of Web 2. ...

Applications

Surowiecki is a very strong advocate of the benefits of decision markets, and regrets the failure of DARPA's controversial Policy Analysis Market to get off the ground. He points to the success of public and internal corporate markets as evidence that a collection of individuals with varying points of view but the same motivation (to make a good guess) can produce an accurate aggregate prediction. According to Surowiecki, the aggregate predictions have been shown to be more reliable than the output of any think tank. He advocates extensions of the existing futures markets even into areas such as terrorist activity, and prediction markets within companies. The Defense Advanced Research Projects Agency (DARPA) is an agency of the United States Department of Defense responsible for the development of new technology for use by the military. ... The Policy Analysis Market (PAM) was a proposed futures exchange developed by the United States Defense Advanced Research Projects Agency and based on an idea first proposed by Net Exchange[1], a San Diego research firm specializing in the development of online markets. ... This article is about the institution. ... Terrorist redirects here. ...

To illustrate its thesis, he says that his publisher is able to publish a more compelling output by relying on individual authors under one-off contracts bringing book ideas to them. In this way they are able to tap into the wisdom of a much larger crowd than would be possible with an in-house writing team.

Will Hutton has argued that Surowiecki's analysis applies to value judgments as well as factual issues, with crowd decisions that "emerge of our own aggregated free will [being] astonishingly... decent". He concludes that "There's no better case for pluralism, diversity and democracy, along with a genuinely independent press." ^[3] Craig is a British writer, weekly columnist (and former editor-in-chief) for The Observer in London and currently Chief Executive of The Work Foundation (formerly the Industrial Society). ...

Applications of the wisdom of crowds effect currently exist in three general categories: Prediction markets, Delphi methods, and extensions of the traditional opinion poll. Prediction markets are speculative markets created for the purpose of making predictions. ... The Delphi method has been an anticipatory thinking (futures) technique aimed at building an agreement, or consensus about an opinion or view, without necessarily having people meet face to face, such as through surveys, questionnaires, e-mails etc. ... Psephology is a term for the statistical study of elections. ...

Prediction markets

Main article: Prediction market

The most common application is the prediction market, a speculative or betting market created to make verifiable predictions. Surowiecki discusses the success of prediction markets. Similar to Delphi methods but unlike opinion polls, prediction (information) markets ask questions like “Who do you think will win the election?” and predict outcomes rather well. Answers to the question “Who will you vote for?” are not as predictive. Prediction markets are speculative markets created for the purpose of making predictions. ... Prediction markets are speculative markets created for the purpose of making predictions. ... The Delphi method has been an anticipatory thinking (futures) technique aimed at building an agreement, or consensus about an opinion or view, without necessarily having people meet face to face, such as through surveys, questionnaires, e-mails etc. ... An Opinion poll is a survey of public opinion from a particular sample or pool. ...

Assets are cash values tied to specific outcomes (e.g., Candidate X will win the election) or parameter (e.g., Next quarter's revenue). The current market prices are interpreted as predictions of the probability of the event or the expected value of the parameter. NewsFutures is an international prediction market that generates consensus probabilities for news events. Consensus View predicts the performance of financial markets, including stocks, futures and foreign exchange. Several companies now offer enterprise class prediction marketplaces to predict project completion dates, sales, or the market potential for new ideas.^{[citation needed]} NewsFutures is a prediction game in the form of a stock market, otherwise known as a prediction market. ...

Delphi methods

Main article: Delphi method

Delphi methods are information aggregation tools that include Hutton's notion of judgments as well as verifiable outcomes. Dialogr is a Delphi method that elicits, judges, and aggregates the collective value of ideas. Dotmocracy is an offline facilitation method that allows participants to generate ideas and recognize levels of collective agreement. TechCast is an example of a Delphi-based forecasting project, ongoing since 1983. About 100 worldwide experts participate and are currently making specific forecasts on 70 technologies in 7 fields. Many of the consensus forecasts have proven to be more accurate that forecasts made by individuals. The Delphi method has been an anticipatory thinking (futures) technique aimed at building an agreement, or consensus about an opinion or view, without necessarily having people meet face to face, such as through surveys, questionnaires, e-mails etc. ...

See also

• The "Ask the Audience" option in the television show Who Wants To Be A Millionaire?
• Prediction market
• Crowdsourcing
• Delphi method
• Wideband delphi
• Informational cascade
• Crowd psychology
• Policy Analysis Market supported by the author of The Wisdom of Crowds
• Scenario Voting - a Microsoft application of The Wisdom of Crowds
• Groupthink
• Iowa Electronic Markets
• Information Routing Group
• Efficient market hypothesis

For other uses, see Who Wants to Be a Millionaire (disambiguation). ... Prediction markets are speculative markets created for the purpose of making predictions. ... Crowdsourcing is a neologism for the act of taking a job traditionally performed by an employee or contractor, and outsourcing it to an undefined, generally large group of people, in the form of an open call. ... The Delphi method has been an anticipatory thinking (futures) technique aimed at building an agreement, or consensus about an opinion or view, without necessarily having people meet face to face, such as through surveys, questionnaires, e-mails etc. ... The Wideband Delphi estimation method is a consensus-based estimation technique for estimating effort. ... Informational cascade is a situation in which every subsequent actor, based on the observations of others, makes the same choice independent of his/her private signal. ... Crowd psychology is a branch of social psychology. ... The Policy Analysis Market (PAM) was a proposed futures exchange developed by the United States Defense Advanced Research Projects Agency and based on an idea first proposed by Net Exchange[1], a San Diego research firm specializing in the development of online markets. ... Summary Microsofts new initiative to acquire customer satisfaction on products like Windows Vista. ... Groupthink is a type of thought exhibited by group members who try to minimize conflict and reach consensus without critically testing, analyzing, and evaluating ideas. ... The Iowa Electronic Markets, or IEM, are a group of real-money futures markets that allow traders to buy and sell contracts based on, among other things, political election results. ... An Information Routing Group (or IRG) is one of a semi-infinite set of similar interlocking and overlapping groups each IRG containing a group of ( maybe 3 to 200) individuals (IRGists) and each IRG loosely sharing a particular common interest; IRGists exchange information, as a group, a sub group, or... In finance, the efficient market hypothesis (EMH) asserts that financial markets are informationally efficient, or that prices on traded assets, e. ...

References and further reading

• Sushil Bikhchandani, David Hirshleifer, and Ivo Welch. "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades." Journal of Political Economy, Vol. 100, No.5, pp. 992-1026, 1992.
• Surowiecki, James (2004). The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations Little, Brown ISBN 0-316-86173-1
• Lee, Gerald Stanley (1913). Crowds. A moving-picture of democracy. Doubleday, Page & Company. Available from Project Gutenberg at [2], retrieved May 2005.
• Le Bon, Gustave. (1895), The Crowd: A Study of the Popular Mind. Available from Project Gutenberg at [3].
• Gabriel Tarde
• Steven Johnson, Emergence: the connected lives of ants, brains, cities and software (2002) Scribner, ISBN 0-684-86876-8
• Cass R. Sunstein, Infotopia: How Many Minds Produce Knowledge (2006) Oxford University Press, ISBN 0195189280

Informational cascade is a situation in which every subsequent actor, based on the observations of others, makes the same choice independent of his/her private signal. ... James Surowiecki James Michael Surowiecki (b. ... Project Gutenberg, abbreviated as PG, is a volunteer effort to digitize, archive and distribute cultural works. ... 2005 : January - February - March - April - May - June - July - August - September - October - November - December- → Wikimedia Commons has media related to: May 2005 Deaths in May May 26: Eddie Albert May 25: Ismail Merchant May 25: Sunil Dutt May 25: Graham Kennedy May 22: Thurl Ravenscroft May 21: Howard Morris May 21... Gustave Le Bon (May 7, 1841 – December 13, 1931) was a French social psychologist, sociologist, and amateur physicist. ... Project Gutenberg, abbreviated as PG, is a volunteer effort to digitize, archive and distribute cultural works. ... Gabriel Tarde (March 12, 1843 in Dordogne, France – May 13, 1904 in Paris) French sociologist and social psychologist who conceived sociology as based on small psychological interactions among individuals (much as if it were chemistry), the fundamental forces being imitation and innovation. ... There are several well-known people called Steven Johnson. ... Cass R. Sunstein (b. ...

External links

• James Surowiecki - Independent Individuals and Wise Crowds Audio interview from IT Conversations
• Wired Magazine Look Who's Crowdsourcing¨
• Net Mining
• MIT Center for Collective Intelligence Prof. Tom Malone's research center
• C/Net NewsTech lessons learned from the wisdom of crowds¨
• Openeur - Scientific Blog about Open Innovation & Entrepreneurship
• [4] Interview with James Surowiecki and Joyce Berg of the Iowa Electronic Markets
• [5]"Fracis Galton, Vox Populi, Nature, v75, p450-451" (scanned facsimile)
• Game Tycoon Using Games to Tap Collective Intelligence. Part 2 of the article.
• [6] Instant polling application based on The Wisdom of Crowds.

The Iowa Electronic Markets, or IEM, are a group of real-money futures markets that allow traders to buy and sell contracts based on, among other things, political election results. ...

Footnotes