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Thursday, November 18, 2004

Dave Pollard on "The Wisdom Of Crowds" -Part I

Dave Pollard writes , that James Surowiecki who writes the financial column in The New Yorker, was certainly expected to do good research even before his book The Wisdom Of Crowds got published. Dave writes that It is the best-written book that he has read in years - clear, clever, accessible, and jammed full of brilliant, original thinking and compelling, supporting stories and reference. The book begins with a taxonomy of three types of problems that individuals and groups try to solve:
• Cognition problems: Problems with one definitive answer that we try to accurately assess after considering available and missing information (e.g. what's a stock worth, who will win an election, or what caused a disaster),
• Coordination problems: Where an optimal combined solution is needed for a problem that affects a whole group, and where this optimal solution is usually sought by having each individual act in personal self-interest (e.g. finding buyers and sellers for products, or determining the best route to work in traffic), and
• Cooperation problems: Where an optimal combined solution is needed for a problem that affects a whole group, and where this optimal solution usually depends on individuals trusting each other and acting fairly and in what they perceive to be collective self-interest rather than just their own (e.g. how to deal with pollution, devise a tax system, or remunerate employees).

One of Surowiecki's principal arguments is that all three types of problems are best solved by canvassing groups (the larger the better) of reasonably informed and engaged people. The group's answer, he shows, is almost invariably better than any expert's answer, even better than the best answer of the experts in the group. The group's answer is the collective answer, a term Surowiecki prefers to 'average' or 'consensus' answer, which aren't always the same thing. And the superiority of the collective answer depends importantly on the group's members having three qualities:
• Intellectual diversity: Different opinions and perspectives (unlike most management teams and boards, who tend to select others who think the same way they do),
• Independence: Freedom from the tendency to want to agree automatically with what one or more other group members says, and
• Decentralization with Aggregation: Individual access to different, specialized knowledge, and a mechanism for effectively sharing that knowledge with the rest of the group.

Much of the book describes the three types of problems, with copious examples (some of them quite entertaining), justifying the three conditions for collective wisdom, and drawing some remarkable inferences about what all this means to some important decision-making processes in our modern world. Surowiecki argues that too much communication can actually render a group dysfunctional, victims of 'analysis paralysis'. Likewise, he demonstrates, too much consensus or compromise produces weak, suboptimal solutions, since opposing views, which must have had some basis for belief, are not adequately aired and weighed. The book describes at length the phenomenon of groupthink and how it biases groups' decisions and gives collective wisdom a bad name. In fact there are four phenomena at work:
-The tendency of groups to excessively rationalize away minority views as improbable,
-the shyness of individuals to voice the first opposing view in the face of an apparent consensus,
-the tendency to accept consensus of a small number as inherent 'proof' of that consensus' validity, and
-the bandwagon tendency of groups to be infected by what Gladwell in The Tipping Point called an 'epidemic'. These are all subtly different phenomena, and they're natural behaviours, but they're irrational, and have led to great skepticism about collective wisdom. These phenomena show up in wild swings in popular opinion, in the inexplicable and transient popularity of crazes, in market 'bubbles', in mob violence, in our willingness to let one person dominate the discussion and bully us into accepting his view (even if he's not the most senior or eloquent person in the group), and in our ability to be brainwashed and engage in barbaric and irrational behaviours. No wonder, then, that so many view the wisdom of crowds as an oxymoron, and are so easily seduced by leaders and experts even when their records of decision-making have been deplorable.
(Part II shall follow)
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