The Wisdom Of Crowds: Why the Many are Smarter than the Few and How Collective Wisdom Shapes Business, Economics, Society and Nations: Why the Many ... Business, Economies, Societies and Nations [Hardcover]

What is the Wisdom of Crowds?

The book defines it rather loosely suggesting that groups make better decisions if certain conditions are met. The conditions are: diversity (to ensure that different information is used to make the decision), independence and (a certain type of) decentralisation (to ensure that no one person is dictating the decision and that people are using their own private information) together with a way of summarising the different opinions into a collective view.

This loose definition allows the book to address a huge range of topics. It does not build a coherent case attempting to support and justify the central thesis. Instead it relies on a more anecdotal approach - examining situations where crowds can be wiser and situations where they fail to be wise - it is a biography of an idea rather than a manifesto.

To provide some structure three different types of problem are identified: cognition problems, co-ordination problems and co-operation problems. However, even within these broad areas large and rather diverse sets of problems are examined. To assist in the analysis a wide range to techniques are utilised including psychology, statistics and game theory.

The book makes great play of the ideas being counterintuitive and surprising; in some of the examples this is true, in others it seems to be seriously stretching the point. For example, the story about finding the lost submarine is interesting and surprising, as is the speed with which the market identified the company at fault for the Space Shuttle disaster. Less surprising are the examples which boil down to applied game theory, statistics or the fundamental nature of markets.

The most important (practical) problem with the thesis is that the conditions required for the wisdom of crowds to apply are very difficult to meet. The book recognises this and devotes considerable space to situations where crowds fail to be wise because of this. For me, these are probably the best sections of the book. It is very clear that the wisdom of crowds does not mean management by committee (as committees almost always fail to meet the necessary conditions). It is also very sharp on the culture of the 'expert' and is very clear about the need for dissent and the importance of (intellectual) diversity. The section on NASA is chilling and excellent.

In spite of the issues this is still a fascinating book. There is a huge range of stories and examples about how the wisdom of crowds can work and how it can fail spectacularly. I found it a thoroughly engaging and interesting book.

The roots of the argument obviously stem from the way markets work -- buyers and sellers find each other and reach efficient outcomes without anyone being in charge, while the stock market (at least some of the time) does as good a job as possible of setting prices. But what I really like is the way Surowiecki extends this argument way beyond business and markets, showing how collective wisdom can be seen (and can potentially be used) in a host of other situations, including the racetrack, on the Internet, and on city streets. He also does a good job of drawing out the possible implications of this for everything from the U.S. intelligence community to the way companies are run.

This is definitely a big-idea book, but the author is cautious in laying out his evidence, and is careful to show that groups, even if they're potentially wise, are often stupid and dangerous. The chapter on small groups in particular, which focuses on NASA's mismanagement of the Columbia mission, is powerful stuff, and useful to anyone interested in how to run a meeting well (or badly, for that matter). The least satisfying part of the book is the chapter on democracy, where Surowiecki shies away from pushing his conclusion to its logical end. But on the whole, this is just a wonderful book, elegant and enlightening.

If you're interested in this book, it's also worth checking out Paul Seabright's "The Company of Strangers" and Robert Wright's "Nonzero."