Topic of Book
Compares the quality of decisions made by individuals versus the quality of decisions made by groups.
While he does not directly address it, Surowiecki gives a succinct explanation for why technological innovation and progress is a group endeavor, rather than the result of few heroic geniuses.
- Under the correct conditions, large groups of people are smarter than the smartest individual in the group.
- Information is diffuse and everyone has small bits of knowledge that help the group. The “knowledge” of an individual is often incorrect. Acting alone, this will seriously undermine the decision-making of the individual
- Group-think mentality (i.e. everyone shares roughly the same viewpoint) seriously undermines the wisdom of the crowd, making it even worse than individual decisions.
Important Quotes from Book
“the simple, but powerful, truth that is at the heart of this book: under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them. Groups do 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, it can still reach a collectively wise decision”
“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 the 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),
- 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. Why? At heart, the answer rests on a mathematical truism. If you ask a large enough group of diverse, independent people to make a prediction or estimate a probability, and then average those estimates, the errors each of them makes in coming up with an answer will cancel themselves out. Each person’s guess, you might say, has two components: information and error. Subtract the error, and you’re left with the information”
“What is striking, though—and what makes a phrase like “the wisdom of crowds” meaningful—is just how much information a group’s collective verdict so often contains”