Tuesday, December 18, 2007
Let's Put our Heads Together
Who's more likely to accurately guess the weight of a large ox; a livestock expert or a large group of amateurs? Francis Galton was surprised to discover that the average of the guesses of the crowd of amateurs was more accurate than the estimate of any single member of the crowd including experts. James Surowiecki has written a book called The Wisdom of the Crowds. The subtitle of the book is Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations.
Western societies have an inherently dichotomous approach to authority. We believe fiercely in the ability of the individual to make decisions for one's self but we willingly acquiesce to the wisdom of the crowds that control the outcome of electoral democratic elections. We elect leaders by giving every single person the opportunity to choose not just professors of Political Science. So it's not difficult for us to accept that a very large group of citizens can arrive at a better decision than a group of oligarchs just like a small group of jurors can arrive at a better decision than a judge (or not).
The world of business has always at been at peace with this approach as it is just plainly true that whatever price a crowd of investors is willing to pay for a share is what accurately determines the price of that share. The futures markets essentially makes bets on what people believe will be the price of a commodity at a certain time in the future. These markets have been shown to be uncannily prescient in these matters as they tend to be incredibly accurate. Even futures markets that bet on who they believe will be the winners of elections have been shown to be more accurate than most polling results. But this seems to work well only when there is something to win or lose by the result of your prediction. People could respond to pollsters' questions in any number of ways but they become much more focused and accurate when there's something immediately at stake.
Businesses are now starting to apply this approach internally by giving away prizes like iPods to employees who can predict something like the date of completion of a particular project. The results they collect from the entries are much more accurate than the time-lines they find in the reports given to them by their subordinates.
Recent technological developments are giving rise to similar innovations in social and political realms. A mass of text-messaging teenagers are given the task of choosing the next American Idol over the expert opinions of that really mean Englishman panelist. A Wikipedia entry is not written by a single expert but is now the source most trusted to supply accurate information. The impressive adoption rate of Facebook gives us an unprecedented opportunity to apply this wisdom of the crowds in myriad ways to our everyday lives. The potential of a large network of individual peers to help us make decisions has not yet even been touched.