The Wisdom of Crowds by James Surowiecki

It is an almost universally held misconception that people are dumber in large numbers. This book demolishes that belief in the very first chapter, and goes on to describe how the mental power of groups of indiviuals can be applied to the world's most challenging problems to produce solutions no individual could have produced on their own.

As it turns out, there are two divergent cases. The first one, which the author labels "groupthink," is the reason why we think of crowds as being dumb. Examples of groupthink include the prototypical angry mob, and Kennedy's staff during the Bay of Pigs political fiasco. Groupthink results which you put people in a room together to produce a decision. Typically one or two strong personalities will dominate the discussion, and everyone else will tend to bend their thinking to match what they think the group consensus is, regardless of what they thought when they entered the room. In this form, crowds are dumb.

The case where crowds are smart is when a group of individuals is polled for their opinion, without being told what everyone else thinks first. Let's call this "aggregate thinking," because people are not thinking or deciding together, but instead the results of their individual thinking is pooled together to produce a final result.

A simple example is counting jellybeans in a jar. If everyone submits a secret vote and the votes are averaged together, it is commonly the case that the group average is closer to the correct answer than any individual answer. In other words: the group is smarter (or at least, better at guessing quantites) than any individual.

As it turns out, aggregate thinking is used heavily in our modern world, though we don't think of it that way. We call them markets. The value of Coca-Cola, Inc. on the NYSE is an aggegate of everyone's private thoughts on what they believe it is worth. Shareholders do not get in a room and decide its worth; blind votes are made every day in the form of buying and selling. The book goes into detail of how the market approach can be used to apply aggregate thinking to problems unrelated to commerce.

Unfortunately this also highlights exactly what is wrong with modern democracy: pre-election polls have such prominance that they effectively turn our blind elections (which should be an aggregation) into groupthink. Candidates win not because a majority like them best, but because they believe that everyone else likes them best. This sort of circular logic leads to a breakdown of the system as intended, and results in less-than-optimal candidates winning offices, especially high ones.

This book rocks. Read it.

Rating: 4 of 5
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