- Hardcover: 297 pages
- Publisher: Doubleday; 1st edition (May 25, 2004)
- Language: English
- ISBN-10: 0385503865
- ISBN-13: 978-0385503860
- Product Dimensions: 5.8 x 1.1 x 8.4 inches
- Shipping Weight: 10.4 ounces (View shipping rates and policies)
- Average Customer Review: 301 customer reviews
- Amazon Best Sellers Rank: #706,572 in Books (See Top 100 in Books)
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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 Hardcover – May 25, 2004
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From Publishers Weekly
While our culture generally trusts experts and distrusts the wisdom of the masses, New Yorker business columnist Surowiecki argues that "under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them." To support this almost counterintuitive proposition, Surowiecki explores problems involving cognition (we're all trying to identify a correct answer), coordination (we need to synchronize our individual activities with others) and cooperation (we have to act together despite our self-interest). His rubric, then, covers a range of problems, including driving in traffic, competing on TV game shows, maximizing stock market performance, voting for political candidates, navigating busy sidewalks, tracking SARS and designing Internet search engines like Google. If four basic conditions are met, a crowd's "collective intelligence" will produce better outcomes than a small group of experts, Surowiecki says, even if members of the crowd don't know all the facts or choose, individually, to act irrationally. "Wise crowds" need (1) diversity of opinion; (2) independence of members from one another; (3) decentralization; and (4) a good method for aggregating opinions. The diversity brings in different information; independence keeps people from being swayed by a single opinion leader; people's errors balance each other out; and including all opinions guarantees that the results are "smarter" than if a single expert had been in charge. Surowiecki's style is pleasantly informal, a tactical disguise for what might otherwise be rather dense material. He offers a great introduction to applied behavioral economics and game theory.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
From Bookmarks Magazine
Surowiecki first developed his ideas for Wisdom of Crowds in his “Financial Page” column of The New Yorker. Many critics found his premise to be an interesting twist on the long held notion that Americans generally question the masses and eschew groupthink. “A socialist might draw some optimistic conclusions from all of this,” wrote The New York Times. “But Surowiecki’s framework is decidedly capitalist.” Some reviewers felt that the academic language and business speak decreased the impact of the argument. Still, it’s a thought-provoking, timely book: the TV studio audience of Who Wants to Be a Millionaire guesses correctly 91 percent of the time, compared to “experts” who guess only 65 percent correctly. Keep up the good work, comrades.
Copyright © 2004 Phillips & Nelson Media, Inc.
Top customer reviews
Surowiecki looks out how using the judgement of the group helps to make better decisions, as long as the group is diverse, comes by their knowledge separately and gets to make their judgements (votes) at the same time (so they aren't unduly influenced by early voters or those with more power).
I've made it an extra credit book in my senior social work class at Rutgers, and I think that it is a wonderful book about how we think and make decisions (on par with Outliers & How We Know What Isn't So).
This phenomenon was first discovered by Francis Galton, Charles Darwin's first cousin. Throughout his life, Galton was obsessed with measurement and categorization. His study of fingerprints led to their use by the police to identify criminals. His study of twins revealed that biological heredity determines intelligence and temperament. He also worked out the coefficient of correlation, which is a basis of modern statistics. In 1906, when Galton was eighty-five and still as inquisitive as ever, he visited a country fair. One of the events was a contest to try to guess what the weight of an ox, which was on display, would be after it had been killed and dressed. In order to enter the contest, a person had to pay sixpence and write his guess, along with his name and address, on a piece of paper. After the contest was over, Galton borrowed the papers with the guesses. There were 787 papers in total. To his amazement, the average guess was only one pound less that the actual weight (1,198 pounds). That was closer than any individual guess. Yet, some of the participants in the contest were butchers and cattle raisers, who would be expected to do much better than the average.
This phenomenon also applies to predictions of future events. That is why it is nearly impossible to make money consistently by betting on sporting events - because the odds are determined by the average of all bets, which is extremely accurate. The most striking illustration of this phenomenon is the otherwise inexplicable fact that, with very few exceptions, professional stock investors (managers of mutual funds, pension funds, etc.) do worse than the stock market indexes. Professional investors are highly intelligent people, who devote all their time to analyzing stocks and stock market trends; they have specially developed soft-ware and teams of assistants. But their analyses are not as accurate as the average analysis of all investors.
However, for the wisdom of crowds to work, two conditions must be met (pages 10-11, 36-7). One is that the opinions of the individuals involved must be formed and expressed independently of the others. When decisions are made by groups meeting together, the group is often swayed by a consensus that seems to have formed or by one or two of its member who seem to have more expertise, or who express their opinions forcefully. Also, the individuals involved must have some knowledge of what is involved. For example, the average prediction of Indonesian peasants as to which team will win the National Football League championship would be worthless.
In line with the second condition, the wisdom of crowds does not apply to areas of technical expertise. The average guess of a crowd as to the weight of an ox when it has been slaughtered and dressed is more accurate than the estimate of any butcher in the crowd. But the butchers in the crowd are more adept than any non-butchers at carving the ox, storing its meat, and preparing it for sale.
Surowiecki offers a general explanation (pages 10-11) for why the crowds are wiser than any of their individual members and specific reasons (pages 34, 44-50) for why professional stock investors do worse than the stock indexes. I found the latter explanations more convincing than the former.
Surowiecki also discusses (pages 236, 245-6) the obvious objection that the average prices of stocks, houses, and commodities often rise and fall sharply, without regard to the value of the assets involved. Such price swings do not occur with ordinary goods and services, such as televisions or haircuts; nor does a rise in price of ordinary goods and services induce more people to buy them. Average predictions of the results of sporting events or of elections are also immune from irrational price bubbles. In these cases, the accuracy of the predictions is decided unequivocally at a specific time in the near future. That keeps the crowd tethered to reality. But when the prices of stocks, houses, and commodities rise, that means that they can be resold at a higher price; and there is no point at which the bet is definitely over and the bettors have undeniably been proved right or wrong.
As a U.S. Army veteran, the author propelled me to thoughts on how the military could use its people's collective wisdom, something on which I have written extensively:Nine Weeks: a teacher's education in Army Basic Training
Among the most relevant claims from the book is this cogent bit of logic:
"To state the obvious, unless people know what the truth is, it's unlikely they'll make the right decisions. This means being honest about performance. It means being honest about what's not happening. It means being honest about expectations. Unfortunately, there's little evidence that this kind of sharing takes place....One of the things that gets in the way of the exchange of real information is the deep-rooted hostility on the part of bosses to opposition from subordinates. This is the real cost of a top-down approach to decision making: it confers the illusion of perfectability upon the decision makers and encourages everyone else simply to play along. What makes this especially damaging is that people in an organization already have a natural inclination to avoid conflict and potential trouble. It's remarkable, in fact, that in an autocratic organization good information ever surfaces.
It's a book that anyone who has been around people should read.