The Wisdom of Crowds

by James Surowiecki

In that sense, Gustave Le Bon had things exactly backward. If you put together a big enough and diverse enough group of people and ask them to "make decisions affecting matters of general interest," that group's decisions will, over time, be "intellectually [superior] to the isolated individual," no matter how smart of well-informed he is. -introduction, xvii

As sociologists Jack B. Soll and Richard Larrick put it, we feel the need to "chase the expert."  The argument of this book is that chasing the expert is a mistake, and a costly one at that.   We should stop hunting and ask the crowd (which, of course, includes the geniuses as well as everyone else) instead.   Chances are, it knows.  -xv

[The book concentrates on three kinds of problems. 1. Cognition problems- problems where a definite answer will be known. 2. Coordination problems- How do members of a group figure out how to coordinate their behavior with each other? (for example, driving laws) 3. Cooperation problems- the challenge of getting self-interested, distrustful people to work together.]

Diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise. -xix

Tellingly, they quoted the Cornell economist Maureen O'Hara, who has said, "While markets appear to work in practice, we are not sure how they work in theory."  -9

[Talking about the speed of the market's reaction to the challenger disaster... The market made one company's stock tumble the most.]
The market was smart that day because it satisfied the four conditions that characterize wise crowds: diversity of opinion (each person should have some private information, even if it's just an eccentric interpretation of known facts), independence (people's opinions are not determined by the opinions of those around them), decentralization (people are able to specialize and draw on local knowledge), and aggregation (some mechanism exists for turning private judgments into a collective decision). If a group satisfies those conditions, its judgment is likely to be accurate. -10

After all, think about what happens if you ask a hundred people to run a 100-meter race, and then average their times. The average time will not be better than the time of the fastest runners. It will be worse. It will be a mediocre time. But ask a hundred people to answer a question or solve a problem, and the average answer will often be at least as good as the answer of the smartest member. With most things, the average is mediocrity. With decision making, it's often excellence. -11

What makes a system successful is its ability to recognize losers and kill them quickly. Or, rather, what makes a system successful is its ability to generate lots of losers and then to recognize them as such and kill them off. Sometimes the messiest approach is the wisest. -29

The point of Page's[Scott Page] experiment is that diversity is, on its own, valuable, so that the simple fact of making a group diverse makes it better at problem solving. -30

Finally, we seek out experts because we get, as the writer Nassim Taleb asserts, "fooled by randomness." If there are enough people out there making predictions, a few of them are going to compile an impressive record over time. That does not mean that the record was the product of skill, nor does it mean that the record will continue into the future. -36

Corporations, after all, are supposed to be maximizing their profits. That means their business practices are their strategic choices should be rationally determined, not shaped by history or by unwritten cultural rules. And yet the odd thing is that convention has a profound effect on economic life and on the way companies do business. -97

A scientist does not enter his lab as a blank slate, waiting to hear what the data will tell him. Instead he enters it as someone whose understanding of what problems are interesting, what problems can be solved, and what problems are interesting, what problems can be solved, and what problems should be solved has been shaped by the interests (in both senses of the word) of his community. -165

A successful hypothesis is a hypothesis that most scientists find credible, not a hypothesis that most scientists have tested for themselves and found to be true. -169

Social scientists who study juries often differentiate between two approaches juries take. Evidence-based juries usually don't even take a vote until after they've spent some time talking over the case, sifting through the evidence, and explicitly contemplating alternative explanations. Verdict-based juries, by contrast, see their mission as reaching a decision as quickly and decisively as possible. -178

This matters because all the evidence suggests that the order in which people speak has a profound effect on the course of a discussion. Earlier comments are more influential, and they tend to provide a framework within which the discussion occurs. -186

If you talk a lot in a group, people will tend to think of you as influential almost by default. Talkative people are not necessarily well liked by other members of the group, but they are listened to. -187

Another study of fifty-two middle managers found that there was a correlation between upward mobility and not telling the boss about things that had gone wrong. The most successful executives tended not to disclose information about fights, budget problems, and so on. -205

But the old corporate model and what happened to it are still worth paying attention to because in some deep way the assumptions that underwrote that model--that integration, hierarchy, and the concentration of power in a few hands lead to success--continue to exert a powerful hold on much of American business. -207

The idea of the wisdom of crowds is not that a group will always give you the right answer but that on average it will consistently come up with a better answer than any individual could provide. -235

. . . you don't see bubbles in the real economy, which is to say the economy where you buy and sell television sets and apples and haircuts. In other words, the price of televisions doesn't suddenly double overnight, only to crash a few months later. -245

As Richard Posner puts it: "Experts constitute a distinct class in society, with values and perspectives that differ systematically from those of ordinary people. Without supposing that the man in the street has any penetrating insights denied the expert, or is immune from demagoguery, we may nevertheless think it reassuring that political power is shared between experts and nonexperts rather than being a monopoly of the former." -268