The Wisdom of Crowds: Bubbles and Crashes
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005) Bubbles and crashes are textbook examples of collective decisionmaking gone wrong. In a bubble, all of the conditions that make groups intelligent — independence, diversity, private judgement — disappear. You don’t see bubbles in the “real” economy — they’re essentially a phenomenon of financial markets. When … Continue reading
The Wisdom of Crowds: Corporations
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005). The 20th century corporation (Ford, for example) was Vertically integrated. “What a company could do for itself, it should do for itself.” Hierarchical, with many layers of management. Centralized, with final decisionmaking power concentrated among very few executives (or just one) This began to break down … Continue reading
The Wisdom of Crowds: Collaboration
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005). Collaboration generates a diversity of perspectives and makes collaborators more individually productive. “Division of cognitive labor” allows scientists to incorporate many different kinds of knowledge, and to do so in an active way (rather than simply learning the information from a book.)” In small groups, the … Continue reading
The Wisdom of Crowds: Individual Irrationality
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005). Markets work according to theory, even when real people (aka imperfect agents) are working within them, with only partial information. Cooperation problems: can be solved even if each individual is single-mindedly pursuing his own self-interest. People are not fully rational players — they care about what’s … Continue reading
The Wisdom of Crowds: Collective Organization
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005). Pedestrians are a well-organized crowd, “in which lots of small, subtle adjustments in pace and stride and direction add up to a relatively smooth and efficient flow.” They are solving coordination problems: “to solve [a coordination problem], a person has to think not only about what he … Continue reading
Wisdom of Crowds: Decentralization
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005). Decentralization has been a central tenet of management theory for the past 20 or so years — self-management, self-organization, and social networks are all prized more and more. Internet rises as the example of decentralized system (economic, organizational, etc) Decentralization: “power does not fully reside in … Continue reading
Wisdom of Crowds: the Challenger Explosion
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005). Within minutes of the explosion of the space shuttle Challenger, investors began dumping stock of the 4 major participating contractors. Three firms began to creep back up after an initial decline, and one stayed down. The market had implicated a responsible party, without any external commentary … Continue reading
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 … Continue reading
The Wisdom of Crowds: Collective Decisionmaking
notes from Surowiecki, James. The Wisdom of Crowds. (Anchor: 2005). If a crowd is asked to guess a value for something (say, a number of jellybeans in a jar), the average of the guesses will be a value that’s about 95% accurate, far better than the individual answers. The guessers are not working as a group, … Continue reading
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 … Continue reading
The Wisdom of Crowds: Decision Markets
Iowa Electronics Market (IEM) project — futures markets that use the crowd wisdom associated with a market to predict election results. Hollywood Stock Exchange (HSX) does the same with box office returns. DARPA’s FutureMap program was a short-lived set of internal markets, which would have been quite small and open only to intelligence analysts, and perhaps … Continue reading
Trade Practices 