Book: The Wisdom of Crowds

  • Read: January 2012
  • Rating: 8/10

The Wisdom of Crowds by James Surowiecki is an interesting take on how crowds can or cannot be wise. I’ll admit, I’m still a little skeptical as I’ve never been apart of the experiments listed in the book (of which there are plenty). James also said he was skeptical after writing the book, before doing experiments himself. Overall, I thought the concepts were pretty fascinating. I don’t think the book warrants 280 pages, but a lot of the book is stories of the experiments, with lots of documentation of what the results were. Overall, it’s definitely worth a read. $0.02 takeaway: best group results are individual decisions made all at once, aggregated together, and averaged.

My Notes

Under the right circumstances, groups are remarkably intelligent

Types of Problems:

  • Cognition problem - problems that have or will have definitive solutions
  • Coordination problem - problems that require members of a group to figure out how to coordinate their behavior with each other
  • Cooperation problem - problems that deal with the challenge of getting self-interested, distrustful people to work together

Conditions necessary for the crowd to be wise:

  • Diversity
  • Independence
  • Decentralization
  • Aggregation

For best group results: Individual guesses, aggregated together and averaged

Don’t first rationally consider all alternatives and determine ideal pattern- send out scouts to each alternative and let them bring back data which can be compared

What makes a system successful is its ability to recognize losers and kill them quickly

Expertise and accuracy are unrelated

It is unlikely that one person, over time, will do better than the group

People have bad intuitions about averaging

Homogenous groups, especially small ones, suffer from groupthink

  • Much like politics!
    • Illusion of invulnerability
    • Willingess to rationalize away possible counterarguments
    • Conviction that dissent is not useful

It’s often easier to change your opinion than to challenge the group

People are willing to conform even against their own better judgement

Independence doesn’t mean isolation, but it does mean relative freedom from the influence of others

Social Proof: if a lot of people are doing something or believe something, there must be a good reason why

Paying attention to what others do should make you smarter, not dumber (which doesn’t always happen)

Information Cascade:

  • As more and more people do something, more and more people believe it is right decision
  • Problem is due to people not making decisions all at once, but rather in sequence
  • People fall in line because the believe they’re learning something important

People are generally overconfident

The more important the decision, the less likely a cascade is to take hold

The closer a person is to a problem, the more likely he or she is to have a good solution to it


  • Strength: encourages independence and specialization whil still allowing people to coordinate their activities to solve difficult problems
  • Weakness: no guarantee that valuable information will find its way through the rest of the system
    • It’s easy for decentralization to become disorganized

Coordination problems also involve the fact that people often think not only about what they believe, but also what other people believe

Culture enables coordination by establishing norms and conventions

Conventions maintain order and stability

Prices are the main vehicle by which information gets transmitted from buyers to sellers and vice versa

Watching a flock move through the air “spontaneous order”

Most important coordination problem: getting resources to the right places at the right cost

In America, the people whom inequality bothers most are the rich

People who repeatedly deal with each other over time recognize the benefits of cooperation, and they do not try to take advantage of each other

The higher the degree to which a culture was integrated with the market, the greater the level of prosociality.

We think of taxpaying as a matter of cooperation

Most people will participate as long as they believe that everyone else is participating

Selfish: 25%

Altruists: conditional consenters

Collective Problem (on taxes)

  • People have to trust
  • Trust in the govenrment
  • Trust the state will find and punish the guilty and avoid punishing the innocent

Scientists publish results and make data available for inspection

Society will end up knowing more if information is diffused as widely as possible

Scientists compete for recognition and attention

You can’t listen to or read everyone, so you only listen to the best

In unstructured, free-flowing discussions, the information that tends to be talked about the most is the information that everyone already knows

Ideas often do not succeed simply on their own merits

Transactions costs: search and information costs, bargaining and decisions costs, policing and enforcement costs

Search for consensus encourages tepid, lowest-common-denominator solutions

People rely on “anchors” when they make decisions

Anchors are arbitrary numbers that people seize on and allow to affect the way they make choices

Once everyone starts piggybacking on the wisdom of crowds, no one is doing anything to add to the wisdom of the crowd