The Wisdom of Crowds is an enlightening book, particularly at the beginning where he spells out his thesis: that, under certain defined conditions, the views of many can often trump the views of one single person, no matter how influential or how much of an expert that person may be.
The book justifies the opinion that forecasting and estimating are better performed by many people from different backgrounds instead of just a single elite. These types of problems, referred to as “cognition” problems, are commonplace – who is going to win the 3.40 at Newmarket, what will our sales be for the next quarter, when will the project be completed, etc.
He then tackles more complex problems, called “coordination” problems and “cooperation” problems, and arrives at a similar conclusion that, left unhindered, crowds of diverse people, acting independently, can arrive at an elegant solution to very complex problems.
In some ways, the book is nothing new. Adam Smith promoted the basic idea over 200 years ago when he talked about the “invisible hand” guiding the market and economists and politicians have been discussing this ever since. Surowiecki asserts that some of the rules of the free market have applications way beyond finance – the inner workings of the Google search engine and the Hollywood Stock Exchange (HSX) are examples that are mentioned.
But, you might be saying, what about stock-market bubbles, group-think, decision by committee, mass-hysteria, riots and all the things that one would attribute negatively to crowds? His view is that crowds work best when a highly diverse group of individuals are able to make independent choices with levels of influence minimised as much as possible. In this way the maximum amount of information can be gleaned from the environment and an aggregation process can then happen which may yield a good answer to the problem at hand. Influence and persuasion are seen as disrupting factors in this process.
If you are looking for a “how to” manual, then the book will be somewhat disappointing. For instance, many business managers face challenges in getting groups to come together to make good decisions. This book provides some tantalising evidence that group decision making is indeed superior, but the reader is left to figure out for themselves how to apply it to their own particular situation.
The book is very readible. It contains a large body of fascinating research material and conveys the conclusions elegantly.