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Book Review: The Wisdom of Crowds

     -  Many Heads are Better than One
     -  An Amazing Guess
     -  Smart Teams
     -  The Dangers of Group Think
     -  Million-Dollar Questions

Many Heads are Better than One

They say that two heads are better than one.

James Surowiecki, author of "The Wisdom of Crowds: Why the Many are Smarter than the Few and How Collective Wisdom Shapes Business, Economics, Societies and Nations," goes even further.

He thinks that under the right circumstances, groups -- from a handful of people to mass markets consisting of millions -- are remarkably intelligent. In fact, he believes they're often smarter than the smartest people in them.

This may come as a surprise to CEOs who struggle to get their management teams to reach consensus on a new product offering or the content and timing of a strategic plan. But in his superbly researched and highly entertaining book, Surowiecki makes a strong case for the power of the many outweighing the power of the one.

Consider the following example.

An Amazing "Guess"

In 1968, the U.S. submarine Scorpion disappeared in the North Atlantic. The search area, based on the sub's last known position, covered an area 20 miles wide and thousands of feet deep.

The top naval brass planned to rely on a few submarine and ocean current experts to guide the search. However, a junior naval officer, John Craven, took a different approach. Craven created several different scenarios to account for the Scorpion's disappearance and then gathered a diverse group -- which included mathematicians and salvage experts as well as submarine specialists -- to evaluate the scenarios.

Rather than have the team of experts work together (in fact, he insisted that team members not share information with each other), Craven asked each individual to speculate on a number of data points and then offer their best guess as to the location of the sub.

Craven compiled all the individual guesses and put together a composite scenario of how the Scorpion went down. Then, using a complex formula (called Baye's theorem), he estimated the Scorpion's final location. A few weeks later, a Navy ship located the ill-fated sub a mere 220 yards from the spot identified by Craven.

According to Surowiecki, none of the individual guesses even came close to the actual location. Yet, out of a 400-square mile radius, the group estimate came within two football fields of hitting the exact spot.

A lucky guess or a testament to the collective intelligence of crowds?

Surowiecki argues convincingly for the latter, giving example after example of how crowds -- often without working together or sharing information -- come up with better decisions and prove more adept at solving problems than any individual in the group.

Smart Teams

Surowiecki believes that when four conditions exist, the collective wisdom of the group will almost always lead to better judgment and more accurate decisions. These conditions include:

  -  Diversity of opinion. Each member of the group has some private information, even if it's nothing more than their own interpretation of the known facts.
  -  Independence. Team members' opinions are not determined or affected by the opinions of those around them.
  -  Decentralization. Members of the group are able to specialize and draw on local knowledge.
  -  Aggregation. Some kind of mechanism exists for turning private judgments into collective decision.

When a group satisfies these four criteria, suggests the author, more often than not it will outperform even the brightest individuals on the team.

Moreover, groups don't need extremely intelligent leaders to be smart. Even when individuals in the group are not especially well-informed or rational, the group can still reach a collectively wise decision.

The Dangers of Group Think

Does this mean the collective wisdom of the group will always outperform individual effort?

Of course not, acknowledges Surowiecki. One only has to look at the Columbia space shuttle disaster, the Ford Edsel, the Bay of Pigs and numerous other political and corporate failures to realize that groups have no stranglehold on infallibility. In fact, a phenomenon called "group think" frequently leads groups to trip over themselves in a headlong rush to disaster.

According to the author, group think occurs when groups -- especially small ones -- lose their diversity and take on an identity of their own. Rather than a collection of individuals operating independently, group members begin to exert real influence on each other's decisions and judgment, causing them to fall prey to problems like:

  -  Emphasizing consensus over dissent
  -  Making snap judgments before gathering all the information
  -   Allowing personal biases to prevent people from asking the right questions and/or gathering more information
    -   Unconsciously seeking information that confirms preconceived notions
  -  Starting with a pre-conceived conclusion and working backward rather than gathering all evidence and seeing what conclusion presents itself
  -  Re-interpreting information to fit the preconceived conclusion

The problem with group think is not so much that it discourages dissent, argues Surowiecki, but that it ignores it and/or makes it seem improbable. And as small, homogenous groups (i.e., corporate boards and management teams) become more so, they become more insulated from outside opinions and therefore more convinced that their judgment must be right.

The solution?

When setting up a team tasked with solving problems or making critical decisions, make sure the key elements -- diversity, independence, decentralization and aggregation -- are present and accounted for. If you can't have all four, at least strive for as much diversity as possible.

Diversity not only enables the presence of different perspectives, it also makes it easier for individuals to say what they really think. This, in turn, enables the group to make decisions based on facts, rather than allegiance, authority or influence. Even when the minority viewpoint is ill-conceived, suggests the author, its presence forces the group to take a more rigorous and balanced approach to the decision-making process.

Ultimately, argues Surowiecki, the confrontation with a minority view forces the majority to interrogate its own positions more thoroughly and carefully -- a process that needs to happen far more often in the boardrooms of corporate America.

Million-Dollar Questions

Expansive in scope, Surowiecki's engaging book covers far more than the nature and makeup of smart teams.

Starting at the 40,000-foot level and working his way down, the author answers a wide variety of questions that affect businesses, economies and societies, such as:

  -  If mass markets are smarter than individuals, why do stock market bubbles happen?
  -  Why do most people pay taxes, even if they think they're paying more than their fair share?
   -    Why do movie theaters charge the same price for terrible movies as for great ones?
  -  What role has trust played in the evolution of capitalism?
  -  Why do the major television networks continue to do ratings sweeps, at a cost of billions of dollars, when they do a poor job of measuring who watches what?
  -  Why don't we have more toll roads in the U.S. to alleviate rush-hour traffic?

"The Wisdom of Crowds" isn't your typical flavor-of-the-month business or management book. Nor does it offer a checklist of action items to help you empower your employees, add value to customers or increase your bottom line.

Instead, it provides a compelling look at how groups, both large and small, go about the critical process of solving problems and making decisions. By illuminating how we operate in groups, the author teaches important lessons about how we go about running our businesses and conducting our lives.

Created for MyTEC. Copyright 2005, TEC Worldwide, Inc. All rights reserved

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