Book Review – The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations

This week’s book review is The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations by James Surowiecki.

I remember a friend getting very annoyed with one of those “management training” exercises designed to prove that eight heads a better than one. In her experience of the exercise, the group decision making was less likely to get the right answer than she (a smart person) was. I like to think of myself as a smart person, so was inclined to agree with her.

This book talks about the situations, more than you might expect, where adding input from more people will help you get to the right answer. A simple, but powerful, example comes from the TV game Who wants to be a Millionaire. The studio audience is right, when asked, 91% of the time. The “phone a friend” pre-arranged expert is only right 65% of the time.

But where I found the book most useful is in understanding the conditions for that to work. They are simple, make sense when you think about it, but easy to forget when confronted with a situation when a group needs to make a decision.

You need diversity – ie the extra people you add need to be different from each other. This is important, as a diverse group will each have a different piece of information to help you come up with the right answer. You need independence – people’s views need to be unchanged by the rest of the group. And finally (and most difficult), you need a method of aggregation that doesn’t lose the information contained in the group. This is easy in the case of Who wants to be a millionaire. Much harder when trying to figure out the answer to a difficult problem. In particular, in a small group, it is very common for a chair to fail to take into account all of the viewpoints of the group. And if the question is more complex than a right or wrong answer (in the book there is an example of a group trying to find a lost submarine, and Bayesian statistics were used to get to the answer) then you need an equally complex aggregation method.

To me this book was useful in pointing out why diversity is useful (apart from the usual fairness arguments) and in helping to think about how in a business sense you can try to harness the inherent wisdom that is available to you. I think it has made me less impatient with some of the business meetings I go to where the opinions of the group are solicited before decisions are made.

And, more importantly, it is a fun read, as you would expect from a frequent New Yorker writer.