The Wisdom of Crowds

Author: James Surowiecki


For a long time I resisted the urge to read this book, as the premise seemed rather obvious. To someone who lives by the reviews on Yelp, or reads the reviews on Amazon before buying a book, there is no additional convincing needed to believe in the wisdom of crowds. It got too hard to ignore when I started seeing it being quoted in other scholarly works and I finally caved in and followed the crowd on this one.

The book is a lot more than just the notion of how an average of independent samples of human observation tends to be remarkably accurate. It has all kinds of nuggets of information on economic experimentation. For example the author describes an experiment where university students randomly walk up to someone on the subway and ask for their seat. The surprising fact is that 50% of the time people actually give up their seat; and this is in the NY Subway, no less. The author then goes on to describe the ultimatum game where one person splits a sum of money in two, and the other decides if he is going to accept the portion that is designated for him. If he rejects the proposal then neither of them get any part of the money. It would seem that a rational player would accept any proposal, since he gets nothing otherwise. However, it turns out that if the split is perceived as very unfair then the player rejects the proposal, suggesting that the utility function is more than just personal gain. How all this relates to the "wisdom of crowds", I don't know, but it makes for some interesting reading.

While I do agree with the general hypothesis of the wisdom of crowds I find it hard to believe that it is always right. I do agree that the statistical sampling that goes into a crowd view makes it more robust to individual biases and timing. However, there are numerous examples like bubbles in a stock market where you can see that the crowd is often wrong. The other place that I find myself disagreeing with the author is the notion that democracy works because it is the wisdom of crowds. A place where it is severely broken is the numerous propositions that the entire state of California is required to vote on and is the crowd view taken to an extreme. However, most people do not understand these propositions and the outcome is simply based on their biases about the topic, e.g. Gay Rights, School Budgets, etc. 

Overall, regardless of whether you agree with the premise or not, the Wisdom of Crowds is a great read.