Wisdom of Crowds: Diversity

Markets, for example, are usually prima facie diverse because they’re made up of people with different attitudes toward risk, different time horizons, different investing styles, and different information.

On teams  or in organizations, by contrast, cognitive diversity needs to be actively selected, and it’s important to do so because in small groups it’s easy for a few biased individuals to exert undue influence and skew the group’s collective decision.

Homogenous groups “spend too much time exploiting and not enough time exploring.”

Our search for experts probably overvalues individual talent and skills, which are limited compared to a diverse group. Group think and pressures toward conformity can push an otherwise well-proportioned group into poor decisionmaking.

Private information: your own individual knowledge.

One of the quickest ways to make people’s judgement systematically biased is to make them dependent on each other for information. The smartest groups, then, are made up of people with diverse perspectives who  are able to stay independent of each other.

You can be biased and irrational, but as long as you’re independent, you won’t make the group any dumber.

 

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