Tuesday, August 24, 2004

The Wisdom of Crowds

(I posted this on my personal-personal blog as well as Omidyar Networks)

I didn't like The Wisdom of Crowds by James Surowiecki as much as I was prepared to. I read the back of the book standing in the Laurel Bookstore waiting for my writing group to start.

I've been thinking a lot at work about how to harness the energy, desires and collective experience of a community to serve nonprofits' technology needs and this book seemed like it would have the magic bullet.

Maybe, I'm saying, I didn't start out with realistic expectations.

So what I really liked. I was impressed with stories like the sub story that captured the ways in which independent thought and analysis can be gathered and aggregated. I also liked Surowiecki's list of the characteristics that allow crowds to shoot for wisdom rather than madness:
  • diversity
  • opportunities for minority opinion
  • independent thought
  • aggregating mechanism

The stock market seemed to be a key reflector for Surowiecki because of the built in aggregating mechanism. He referred to directly via many stories and also indirectly when talking about the Iowa Electronic Markets as well as the Hollywood Stock Exchange. I admit to having a few problems with this. In addition, he argues that consumer purchasing behavior provides a level of collective wisdom (he does point out the trend pushing dangers of group think).

Surowiecki assumes that the stock market and our collective purchasing decisions reflect what we think the best solution is to a given problem; that is: the actions being collected stand for long-term and not short term decisions. In fact, I'd argue that on the stock market people are predicting what others are likely to buy in the future but don't know about in the present (the hiddent gem that will make us millions).

I'd argue that the more common mechanism of looking at purchases as being a decision-making tool also fails. Rather than bet on what will make us a buck, we are betting on what will reserve as many of our bucks as possible. In this instance, price becomes a major feature and decision-making factor. However, price is compared to the immediate feature set of the goods and not things like health care for the people who produced the goods, disposal costs, opportunity costs for the region that developed the good or the materials which went into the manufacture of the goods. Basically, I do feel that price stands for enough to allow it convey the information necessary to make a full decision.

So, I guess this is my bottom line: I was very happy to see his discussion of the characteristics of wise crowds and can find some immediate applications for them in my work. I'd like more depth around the characterstics of necessary decision-making information.

For some related links on this: