Wisdom of Crowds: Independence

Independence is not a given — we’re social beings. Economists tend to overemphasize autonomy/individuality and downplay social structures and interactions.

Social proof: the tendency to assume that if lots of people are doing something or believe something, there must be a good reason why. This is different from conformity, it’s completely voluntary. When other people look up in the sky, we look up too to see what they’re looking at.

Herding: risk aversion leads us to find safety in numbers alluring, even if those numbers don’t actually make us safer.

Information cascade: people will follow each other in sequence, assuming that other people are making decisions based on good information. After a certain point, it becomes rational for people to stop paying attention to their own private information and begin imitating the actions of others. But when everybody is suddenly relying on each other for information, no one has good information anymore.

Instead of aggregating all the information individuals have, the way a market or voting system does, the cascade becomes a sequence of uninformed choices, so that collectively the group ends up making a bad decision.

A few influential people — either because they happened to go first, or because they have particular skills and fill particular holes in people’s social networks — determine the course of the cascade.

Bubbles come about in part because of information cascades.

Used well, imitation is a powerful tool for spreading good ideas fast. Intelligent imitation can help the group — by making it easier for good ideas to spread quickly — but slavish imitation hurts.

Information cascades are a way of aggregating information, like a market or a vote. The problem is not in the aggregation, but in the sequential way information is aggregated — some decisions are made before others, and thus have too much influence on the collective decision.

Successful group decisions will happen if you can get everybody to pay more attention to their own private information and less attention to what everyone else is doing. (Good luck with that.)

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