The Wisdom of Crowds

JAMES SUROWIECKI

Reviewed by Todd

The field of nonfiction narratives was a crowded one in 2006, with a number of books published examining varying aspects of decision making. Steven Levitt and Stephen Dubner’s immensely popular Freakonomics takes the tools of the dismal science of economics and applies it unexpectedly to things like the housing decisions of drug dealers (many, it turns out, choose to live with their mothers). Malcolm Gladwell’s sophmore effort, Blink, explores the subtle nuances of intuition. While the previous two books looked at decision making by individuals, James Surowiecki took a decidedly different approach in examining the decision-making power of groups in his book The Wisdom of Crowds.

Surowiecki offers copious examples to show when groups solve problems better than individuals. When contestants on the TV game show Who Wants to Be a Millionaire? use their phone-a-friend lifeline, the likelihood of a right answer stands at 65 percent, while asking the audience delivers the correct response 91 percent of the time. The Iowa Electronic Markets bring together individuals who make trades based on what they think will happen in a variety of political elections. This market-based method is more accurate than voter polls 75 percent of the time and predicts actual election outcomes within a few percentage points.

This is not to say that group decision making is superior in all instances. Surowiecki proposes three conditions that must be satisfied in order for masses to outperform their members. First, the group must be diverse, a condition that ensures a wide sourcing of ideas and perspectives. The members of the group must have a certain level of independence, a tougher constraint given our social nature and natural tendency to follow the crowd. Finally, there must be a method to aggregate the differing opinions of the group. For example, markets use price to pull together all of the opinions of buyers and sellers and determine value.

When these conditions are satisfied, groups prove well suited to tackling three categories of problems. The phone-a-friend example or making election predictions are what Surowieicki refers to as cognitive problems, those questions which have definitive answers. The problem of coordination finds a solution in the stock market, in this case matching supply with demand. Organizations do much the same in organizing individuals in the pursuit of a purpose. The toughest of the three problems requires cooperation to reach a solution. Individuals have a hard time looking past their own self-interests and adopting a broader view. Paying taxes or curbing pollution are among the many problems that fall into this category.

“What I think we know now is that in the long run, the crowd’s judgment is going to give us the best chance of making the right decision, and in the face of that knowledge, traditional notions of power and leadership should begin to pale.”

The second half of the book is devoted to cases, three of which deal specifically with business issues. “Committees, Juries, and Teams: The Columbia Disaster and How Small Groups Can Be Made to Work” is the best example of Surowiecki’s ability to synthesize issues of economics, sociology, and psychology with real-world storytelling. In this case, the focus is on the dysfunction present in NASA’s Mission Management Team during the ill-fated flight of the space shuttle Columbia in 2003. From the start, team leader Linda Ham worked from a preset conclusion that the foam debris that struck the shuttle on liftoff was not a risk, ignoring inquiries and statements to the contrary. The absence of questioning by Ham’s team in the face of further evidence confirms studies conducted by political scientist Charlan Nemeth, who found that juries that consider a minority opinion produce more nuanced decisions and used a more rigorous process for reaching their conclusions. Transcripts of the NASA team meetings show Ham did not allow minority opinion. Surowiecki also uses social psychologist Garold Stasser’s research to illustrate some of the problems of small teams like this one. In Stasser’s experiment, all members of a team are given the same two pieces of information, while a few of the members are given one or two additional pieces of information. Consistently, teams deliberated on the common information, not the unique knowledge held by the minority. The Columbia tragedy could have been avoided with a broader decision-making process that brought all team members to the table, allowing their information to be shared and integrated into the deliberations.

Companies are already utilizing The Wisdom of Crowds. Companies like Hewlett-Packard, Google, and Microsoft are using internal-decision markets to predict customer demand for their products. Spanish-based clothing retailer Zara is using real-time feedback from its thousand-plus stores worldwide and its three-week concept-to-product cycle to introduce twenty thousand new products each year and produce the exact type and quantity needed for each outlet, replenishing stock twice weekly. But the widespread use of teams requires leaders to understand the pitfalls in group dynamics and ensure that the overall organization and its subcomponents are making the best decisions possible.

When next posed with the question “How do we solve this problem?” the answer should be clear—listen to the crowd. They make better decisions, period. TS

The Wisdom of Crowds, Anchor Books, Paperback 2005, ISBN 9780385721707

WHERE TO NEXT? Here for the nuts and bolts of small groups Here for working well in small groups Here for complex group dynamics | EVEN MORE: Flavor of the Month by Joel Best; Super Crunchers by Ian Ayres; Smart Mobs by Howard Rheingold