The popular phrase “the wisdom of crowds” is derived from James Surowiecki’s 2004 book of the same name. The book contains its premise in its subtitle: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations. Simply put, the opinions of many people are, in the aggregate, more accurate than the opinions of individuals or small groups. Surowiecki argues that wise crowds enable better cognition, coordination, and cooperation.
Clearly, popular reference to phrases and words related to the wisdom of crowds drastically increased after Surowiecki’s book came out. However, most people bastardized the book’s teachings and assumed any crowd was better than no crowd. It’s important to note, though, that Surowiecki listed four criteria that must be met for a crowd to be considered wise:
- Diversity of opinion: each person should have private information, even if it’s just an eccentric interpretation of the known facts.
- Independence: people’s opinions are not determined by the opinions of those around them.
- Decentralization: people are able to specialize and draw on local knowledge, rather than drawing from top-down knowledge.
- Aggregation: a mechanism exists for turning private judgments into a single collective decision.
On the other hand, the following traits can cause a crowd to become foolish:
- Homogeneity: if a crowd is homogenous, it becomes impossible to ensure enough variance in approach, thought process, and private information.
- Centralization: in many cases, top-down, hierarchical bureaucracy can be closed off to wisdom from unexpected places.
- Division: when information is not allowed to flow freely, those who need access to inform their opinions may not have it in a timely manner
- Imitation: once past decisions have become sufficiently informative, it pays for later decision makers to simply copy those around them. This can lead to poor outcomes.
- Emotionality: emotional factors can lead to peer pressure, herd behavior, and collective hysteria, which creates bad outcomes.
Nate Silver argues that both Brexit and Trump’s election to the Presidency both occurred due to foolish crowds; to be clear, he’s not talking about populists but the liberals who opposed them. Silver mentions the lack of diversity of newscasters as well as the liberal elite; this breaks Surowiecki’s first premise. Breaking the second and third premises, people’s opinions were mutually reinforced through conversation and predominantly based on the reporting of just a few consolidated newspapers. While journalism does fine with regard to aggregation, by that point, it was too little too late.
In reality, it’s hard to meet Surowiecki’s criteria outside of an experimental environment. Fortunately, scientists from MIT and Princeton have determined a way to improve the wisdom of crowds by looking for the “surprisingly popular” answer:
The new method is simple. For a given question, people are asked two things: What they think the right answer is, and what they think popular opinion will be. The variation between the two aggregate responses indicates the correct answer.
Consider an example for clarification. The researchers asked experimental subjects whether Philadelphia was the capital of Pennsylvania; subjects were also asked to predict what percentage of other voters would answer “yes”. While Harrisburg is the real capital of PA, people mistakenly assume Philly is due to the city’s historical significance; the subjects who answered with Philly also stated that most others would agree (i.e. a high percentage of “yes” votes). Some respondents knew that Harrisburg was correct but anticipated a high percentage of “yes” votes (they knew others would get the question wrong). Per the study:
That means the answer to the two questions — Is Philadelphia the capital? Will other people think so? — diverged. Almost everyone expected other people to answer “yes.” But the actual percentage of people who answered “yes” was significantly lower. For this reason, the “no” answer was the “surprisingly popular” one, since it deviated from expectations of what the answer would be. And since the “surprisingly popular” answer differed in the “no” direction, that tells us the correct answer: No, Philadelphia is not the capital.
Ultimately, it’s important to weight for those people who have more specialized knowledge. And those people — if they have both correct information and a correct sense of public perception — make a big difference to the answers given by crowds.