The Wisdom of Crowds by James Surowiecki
What I think we know now is that in the long run, the crowd’s judgment is going to give us the best chance of making the right decision, and in the face of that knowledge, traditional notions of power and leadership should begin to pale.
2006 was a year of popular business books. Steven Levitt and Stephen Dubner’s cult hit, Freakonomics was released in 2006, as was celebrity non-fiction writer Malcolm Gladwell’s Blink which explores the power of intuition. A less well known book released in the same year was James Surowiecki’s “The Wisdom of the Crowds”.
It might be argued that Surowiecki’s book was the best business book of the year, since it explores the unique idea that a decision taken by the crowd or by groups is more likely to be right than one taken by an individual, and hence the title.
There are several examples taken by Surowiecki to prove his thesis. Take the show Who Wants to Be a Millionaire? According to the research done by Surowiecki, the chance of an answer being correct when contestants use their phone-a-friend lifeline is 65% and when contestants ask the crowd for an answer, the likelihood of a right answer stands at 91%.
Another interesting example cited is of the Iowa Electronic Markets where individuals make trades based on their predictions for the results of a political election. This market-based approach has been found to be accurate 75% of the time, way more accurate than an opinion poll.
However, there are certain conditions only when this crowd based approach can succeed.
The group must be diverse, which ensures many more ideas and perspectives.
The members of the group should be reasonably independent to make their own decisions and not be compelled to follow the crowd
There should be a recognized process to aggregate the differing opinions of the group.
When the above conditions achieved, the chances of success are far better than not.
Surowiecki uses many case studies to prove his point. He discusses how NASA handled the Columbia disaster of 2003 and how it could have been avoided with a broader decision-making process that brought all participants to the table and integrated their decision making across the board.
Companies such as Google, HP and Microsoft are already using the Wisdom of the Crowds approach while making decisions. Spain’s biggest private company, the clothing giant Zara has been using this approach since its inception, using real-time customer feedback from its 20,000 stores across the world to design best selling products.
Wikipedia, the world’s biggest encyclopedia, is perhaps one of the greatest success stories that make use of the Wisdom of the Crowds approach. As readers will be aware, all the content on Wikipedia is crowd generated. Even supervisory roles and editing are taken over by the crowd. The company itself has fewer than a dozen full time employees.
The takeaway from the story is, when companies are in doubt about how to approach a situation and confused about a decision, Always Listen to the Crowd. The crowd has all the answers – and the right ones, at that.