Product: 0385503865

James Surowiecki, financial columnist for The New Yorker, has an insight. He has concluded after much research that contrary to common belief a large group of ordinary people can make better decisions than small groups of experts. His book is rich with anecdotes supporting his thesis. For example, a large group of people trying to guess the number of jellybeans in a jar or the weight of a cow will come very close to the right answer. This happens when we aggregate the average number in each of these cases. From this he concludes that the masses can indeed make smart decisions. The question is: Does this insight translate into people making good political and economic decisions.

Surowiecki argues that four conditons must be present for crowds to act intelligently.

1)There must be diversity of opinion. This may explain why experts are often wrong; experts all come to the table with the same qulifications - that which made them an expert in the first place - often leading to groupthink.

2)Individuals must make their decisions independently. In the case of the jellybeans and cow, decisions are independently, but there are many other cases - such as elections or buying stocks - were independent thinking is difficult to achieve.

3)Individuals must be decentralized. In an increasingly networked world, decentralizaion is becoming more rare. People, again, too easily tend to go along with the opinions of others.

4)Aggregation is the mechanism by which the knowledge of the group is harnessed to improve the decision-making process. In a perfect world, this would be the ideal result. For example, in the stock market, if all the right conditions are present, the resulting stock price would be the most accurate one - but how often does that happen?

One must bear in mind that Surowiecki is a financial writer and that he closely follows the operation of the stock market. He is fascinated by the model of the market in which the actors are presumably rational. He is well aware that the market can be irrational…and unduly exuberant. One has only to recall the dotcom bubble, and all the other stock bubbles going all the way back to Dutch tulip mania of the 1630’s. Surowiecki tells us that the above mentioned conditions were not present, that they were cases where people were not sufficiently diverse, independent, and decentralized; that they all succumbed to groupthink.

The examples of large groups making decisions that are not in their interest go back as far as recorded history - indeed, they are the stuff of history. That being obvious, there are still glimmers of hope in Surowiecki’s theory. Consider, for example, the new user-generated websites on the internet - a setting were the four conditions are often possible. Wikipedia, which is created by users, is a great source of information even though it is not always accurate. But it is arguably better, larger, and more up-to-date than encyclopedias created by small groups of experts. Also restaurant review websites such as Yelp often give more accurate reviews than those by the so-called professional food critics. Another example of intelligent crowds in action is Linux open-source software, often a superior product when compared to Microsoft Windows.

Surowiecki’s model seems to work best in an internet-type of setting where individuals can more readily think outside of the box. However, in the messy world of politics, and also in the marketplace, groupthink and media manipulation still reigns supreme.
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