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The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, first published in 2004, is a book written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group. The book presents numerous case studies and anecdotes to illustrate its argument, and touches on several fields, primarily economics and psychology.
Types of crowd wisdom Edit
Surowiecki breaks down the advantages he sees in disorganized decisions into three main types, which he classifies as:
- Market judgment, which he argues can be much faster, more reliable, and less subject to political forces than the deliberations of experts, or expert committees
- Coordination of behavior includes optimizing the utilization of a popular restaurant and not colliding in moving traffic flows. The book is replete with examples from experimental economics, but this section relies more on naturally occurring experiments such as pedestrians optimizing the pavement flow, or the extent of crowding in popular restaurants. He examines how common understanding within a culture allows remarkably accurate judgments about specific reactions of other members of the culture.
- How groups of people can form networks of trust without a central system controlling their behavior or directly enforcing their compliance. This section is especially pro-free mark.
Four elements required to form a wise crowd Edit
Not all crowds (groups) are wise. Consider, for example, mobs or crazed investors in a stock market bubble. Refer to Failures of crowd intelligence (below) for more examples of unwise crowds. According to Surowiecki, these key criteria separate wise crowds from irrational ones:
- Diversity of opinion
- Each person should have private information even if it's just an eccentric interpretation of the known facts.
- People's opinions aren't determined by the opinions of those around them.
- People are able to specialize and draw on local knowledge.
- Some mechanism exists for turning private judgments into a collective decision.