speed reading experiment

March 21, 2005

several people have told me that i absolutely must read the wisdom of crowds. instead of read it, i’m going to see how quickly i can grok it by reading reviews and outside sources.

9:41 amazon
The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations by James Surowiecki

“Large groups of people are smarter than an elite few, no matter how brilliant–better at solving problems, better at fostering innovation, coming to wise deicsions, even predicting the future.

Francis Galton takes the guesses of 787 people at the weight of an ox, thinking to show how stupid they were. The mean guess: 1,197 pounds. The weight of the ox? 1,198 pounds. Something’s up.

We should stop chasing experts and ask the crowd. A host of authors — Nietsche, McKay, Carlisle, Mencken, Thoreau, and Bernard Beruch — disagree. Carlisle: “I do not believe in the collective wisdom of individual ignorance.”

From Publisher’s Weekly:

Surowiecki argues that “under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.” To support this almost counterintuitive proposition, Surowiecki explores problems involving cognition (we’re all trying to iden?ify a correct answer), coordination (we need to synchronize our individual activities with others) and cooperation (we have to act together despite our self-interest). His rubric, then, covers a range of problems, including driving in traffic, competing on TV game shows, maximizing stock market performance, voting for political candidates, navigating busy sidewalks, tracking SARS and designing Internet search engines like Google. If four basic conditions are met, a crowd’s “collective intelligence” will produce better outcomes than a small group of experts, Surowiecki says, even if members of the crowd don’t know all the facts or choose, individually, to act irrationally. “Wise crowds” need (1) diversity of opinion; (2) independence of members from one another; (3) decentralization; and (4) a good method for aggregating opinions. The diversity brings in different information; independence keeps people from being swayed by a single opinion leader; people’s errors balance each other out; and including all opinions guarantees that the results are “smarter” than if a single expert had been in charge. Surowiecki’s style is pleasantly informal, a tactical disguise for what might otherwise be rather dense material. He offers a great introduction to applied behavioral economics and game theory.

9:59 tv interlude

11:00 pm

from a review on amazon:

The right circumstances for collective wisdom are:

1. Diversity: when arguments, views and opinions do not differ from each other they don’t add anything to one another. Diversity guarantees that multiple perspectives are brought into the decision-making process and that a broader range of information is included.

2. Independence: when individual group members are strongly influenced by arguments, information, experiences and onions of others this will suppress the diversity of input into the decision-making process. This increases the likelihood of groupthink.

3. Decentralization: the chance to achieve collective wisdom is greatest when individuals get a chance to bring their own information and experience into the process. Surowiecki calls this `local experience’.

4. Aggregation: a mechanism and a process to come to an integration of the different views and opinions. It is very important to prevent there will be too much interaction before each other to strongly so that the pressure to conform may get too strong and any deviating opinions will be suppressed.

An intelligent group does not ask of its individual members to conform to the dominant view. Instead it has created a mechanism that resembles a democracy or a market. Individual group members get the opportunity to bring in their own information and opinions and are not forced to change their views. Their independence is explicitly protected.

this reminds me of the lesson of desert survival game.


NYT

BOOK REVIEW DESK
Problem Solving: A Team Sport
By SCOTT MCLEMEE
Published: May 23, 2004, Sunday

… By the time the author comes to the topic of cooperation, we are not just in the middle of the book but at its core. There is a certain notion of rationality that starts from the assumption that each of us is, in essence, a monad designed to maximize profit and pleasure. Our interactions with one another are, by that light, a means of self-aggrandizement. If you do not kill me for my wallet at the first opportunity, or vice versa, that is because we are afraid of certain consequences we predict might be bad, like being arrested.

But research consulted by Surowiecki indicates that we do in fact have prosocial tendencies. Given the chance to cheat, lie and freeload, fewer people do so than one might expect. (I, for one, am relieved.)

A socialist might draw some optimistic conclusions from all of this. But Surowiecki’s framework is decidedly capitalist. The market is a mechanism for translating ”the wisdom of crowds” into optimal results, though things would probably improve if business leaders were a little less prone to thinking that, as Margaret Thatcher once put it, ”There is no such thing as society.” Whether Surowiecki’s book will prevent another Enron is very much to be doubted, but his worldview is at least less cynical than Victorian notions that humanity, as a group, is a dumb herd.

CEO Network Chat
Q&A: James Surowiecki
06.01.04, 11:12 AM ET

What follows is the transcript of a May 28 online chat on the Forbes.com CEO Network with James Surowiecki, the New Yorker business columnist and author of the new book The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations (Doubleday, $24.95). The chat was hosted by Mark Lewis of Forbes.com.

Lewis: Welcome, everyone. Jim is here and we’re ready to begin. So as it turns out, Jim, to be far from the madding crowd is to be far from the seat of wisdom. Seems counterintuitive. What led you to come up with this theory?

Surowiecki: I started in business journalism from the outside, so when I started writing about markets and business, I was struck by the fact that markets seemed to work well even though people are often irrational, lack good information and are not perfect in the way they think about decisions. So that started me wondering how this was possible, and that got me on the path that led to all the material in the book.

Why do crowds get such a bad rap?

Well, some crowds deserve a bad rap. Think of a mob, or investors during a stock market bubble. But I think we confuse these extremes of crowd behavior with how groups normally work. Under the right circumstances groups are remarkably smart, smarter even sometimes than the smartest people in them. I also think that there is a bias against the masses, so to speak, and an assumption that only people we recognize as experts should have a say in tough decisions.

You say crowds work best when the people in them act independently. That sounds like an oxymoron: a herd of independent minds. Is this really how a crowd operates?

It depends on the crowd. Bettors at the racetrack are working relatively independently of each other. The Web sites that allow Google to find the Web pages you’re looking for are, too. And so, sometimes, are investors. But independence is not easy, and there are plenty of groups where people are mainly paying attention to each other, rather than trying to work on their own.

When does a crowd become a mob, and why?

I think there are two things that happen. The first is that people start taking their cues from each other, so that they assume that if many people are doing something, they should, too. The second thing that happens is that diversity–of opinion and information–vanishes, and the crowd starts to act almost as if it’s of one mind.

You cite the rise of the Linux open-source operating software as an example of how the decentralization of knowledge enables the wisdom of crowds. How has that worked with Linux?

Linux is a complex example of the wisdom of crowds. It’s a good example in the sense that it shows you can set people to work in a decentralized way–that is, without anyone really directing their efforts in a particular direction–and still trust that they’re going to come up with good answers. But Linux is different from most of the examples I use in the book because in each case, one person writes the pieces of code that get incorporated into the Linux kernel. The kind of collective wisdom I talk about most in the book is not about finding the one person who has the right answer. It’s about allowing the group, collectively, to make a decision.

You quote from a wide range of pundits, from Friedrich Hayek to Bill Murray in Caddyshack. How’d you go about assembling the crowd of thinkers from whom you distilled the wisdom in your book?

Some of them were impossible to leave out. Hayek, Adam Smith–these are people you have to think about and write about if you want to write about markets and collective behavior more generally. But I also found lots of interesting work and lots of interesting thinkers who people haven’t paid that much attention to or who are still young enough that their work is just beginning to get known, and I found a lot of value in their work–people like the political scientist Scott Page, or the new experimental economists.

What are the management implications of your theory? How can a CEO apply it to his job?

I think the first step is that when a CEO sets about trying to make decisions, he should make sure that he’s drawing on as diverse a set of information sources and opinions as possible. This sounds obvious, but in practice it’s very difficult, because people, even high-level executives, have a hard time always saying what they really think, and because we tend to surround ourselves with people we agree with. All of that makes it more likely that decisions will be flawed. On a broader level, I think CEOs need to think about giving up some authority and allowing decisions to be made on a team or group basis. I’m not talking here about consensus or compromise, but about group decisions like the ones markets or betting pools make. Alfred Sloan, the greatest CEO in American history, made decisions by tapping into the collective wisdom of his executives, and I think that’s a good model to follow.

Let’s take a question from the, er, crowd.

AlexKelleher: How does your thinking see startup business investment? That is rarely a crowd decision, rather a few hopefuls, and has created much of today’s wealth.

I have a chapter in the book on diversity, and the first half of that chapter is about innovation and entrepreneurship. I think the emphasis on entrepreneurship is essential to an economy and that it is primarily the result of individual efforts. But we also know that most entrepreneurs fail, and that most innovations fall short of the mark. The collective wisdom I’m talking about is good in judging alternatives, evaluating new technologies, etc. But I think entrepreneurs are always going to be the ones who come up with them.

How about investors? Should they embrace the wisdom of the crowd by only buying index funds?

Well, that would be my advice, boring as it sounds. I certainly don’t think the market is always right, but I think it’s very hard to know when it’s wrong, and even harder to make money from that knowledge. So staying with index funds seems like the right strategy to me.

And contrarian investors? How do they ply their trade vs. the wise crowd?

I think the simple answer–although it’s not that simple to pull off–is that contrarian investors need to look for those moments when the crowd is no longer diverse (in terms of its opinions), or when it’s been seized by speculative fervor. Those are the times to move against the crowd. The problem is that it’s easy to be too early in doing so, in which case, even if you’re right, you still may end up getting punished.

In your book you mention the Long-Term Capital Management fiasco of 1998. They were very smart strategists, yet they were trampled by the investing multitudes. What happened there?

I think LTCM fell victim to two things. First of all, they were simply too big in the market–in some of the markets they invested in, they accounted for more half of the total capitalization, I believe. That meant that there was little diversity, because LTCM dominated everyone’s thinking. So when people lost faith in their positions, there was no one to step in and think differently. I also think LTCM underestimated how bad things could get. They had these models, but they just didn’t take into account the truly disastrous scenario. That killed them because of how leveraged they were.

What are your book’s implications for the political process? Does the crowd of voters generally choose the best candidate?

The question of democracy is a tricky one, in fact I think the trickiest one that I deal with in the book. What I would say is not so much that voters necessarily choose the best candidate, but that democratic processes are the best way to make good decisions. In other words, once you know what you want to do, a democratic process is the best way to figure out how to do it.

a few dead ends: my BusinGBN Book Club/a> Archive

The Publisher’s Site

“No one in this world, so far as I know, has ever lost money by underestimating the intelligence of the great masses of the plain people.”
-H. L. Mencken

H. L. Mencken was wrong.

What do you most hope people will learn from reading THE WISDOM OF CROWDS?

I think the most important lesson is not to rely on the wisdom of one or two experts or leaders when making difficult decisions. That doesn’t mean that expertise is irrelevant, or that we don’t need smart people. It just means that together all of us know more than any one of us does.

The Debate with Gladwell on Slate
http://slate.msn.com/id/2111894/entry/2112064/

Gladwell: But you don’t think, I assume, that nonexperts groups are always better than expert individuals. Polling everyone with a B.A. in physics in 1900 on solutions to the problem of relativity doesn’t get you to E=mc2 faster than asking Einstein. What you are trying to do is simply break the monopoly of the Standard Model and argue that just as problems take many different forms, so too must problem-solving.

Surowicki: NASA, for instance, recently ran an online experiment called “clickworkers” to test whether the collective judgment of ordinary people would be of any use finding and classifying craters on Mars. You could go to the site, get trained (for a couple of hours, I think), and then click away. The result, in NASA’s words: “the automatically computed consensus of a large number of clickworkers is virtually indistinguishable from the inputs of a geologist with years of experience in identifying Mars craters.” And these people weren’t even being paid.

Why does this work? The key is that even though each person in the group is making mistakes (often, lots of them), as long as the group is large enough and diverse enough, the errors people make effectively cancel themselves out. And what remains, remarkably often, is the information you’re looking for. This sounds—at least to some people—implausible, or pseudo-mystical, or both. But, as you mention, in my book there are myriad examples of this phenomenon at work, solving problems from the simple (guessing the number of jellybeans in a jar) to the mindbogglingly complex (finding a lost submarine on the basis of a few fragments of information).

– – – – –

What’s important, though, is that even in those situations where expert knowledge seems necessary, you’re better off relying on the judgment of a group of experts rather than a single expert, no matter how brilliant. The truth is that I don’t really think of The Wisdom of Crowds as a defense of laypeople against experts. (As I say in the book, I always assume that in most cases, “crowds” will include experts as well as amateurs.) I think of it as a defense of collective decision-making against our excessive faith in the single, individual decision-maker.

– – – – – –

…even brilliant experts have biases and blind spots, and so they make mistakes. And what’s troubling is that, in general, they don’t know when they’re doing it.

– – – – – –

Jim,

I cannot tell you how delighted I was to see you use the phrase “The Standard Model” to describe deliberate cognition. For some (largely childish) reason, I love giving ideas dorky labels and then hoping—praying—that someone else picks them up.

In other words, part of what it means to protect judgments against corruption is to insist on at least some discipline in the gathering of information—and if there is anything that characterizes contemporary decision-making it is, I think, an utter lack of discipline. So, to your second point: Is the Standard Model somehow better insulated against this problem? I don’t think so, for the simple reason that it’s very hard—even within the most formal decision-making structures—to separate out the influence of unconscious bias. All those audition committees in the pre-screen era, for example, made snap judgments about who they liked. But then, when all the applicants had played, they sat down and compared notes and discussed pros and cons, and pored over résumés, and deliberately and formally reviewed the case for each musician—and they still chose only men.

– – – –

11:57, with a few forays chasing interesting sidebars.

I spent an hour and twenty minutes looking for, and reading bits and pieces of The Wisdom of Crowds. I think I have a pretty good handle on the book. I know a number of its anecdotes and can recite what to look for in an effective crowd: diversity, independence; a simply expressed outcome; and decentralization. I copied and pasted 3,200 words from reviews and quaterles on the web.

Compare this to spending 10 hours reading the book itself.

I may still read the book: the reviewers agree that it’s a good read. But it will be a while. And I don’t expect to pass full price when I do so. The library will suffice.

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