The Wisdom of Crowds Book Summary

Book Summary

15 min

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Brief Summary

An efficient team can make smarter decisions than a sole individual. A big group can produce better results if it is diverse and decentralized.

About the Author

James Surowiecki is an American journalist. He previously worked as a staff writer at The New Yorker on a regular column on business and finance called “The Financial Page”. He was born in Connecticut and graduated with a PH.D in American History at Yale University. He works as a financial journalist and lives in Brooklyn, New York. His work has been featured in The New York Times, the Wall Street Journal, The Motley Fool, and Slate. His early start was as an editor in chief of Rogue site on America Online.

Topics

Psychology

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Key Insights

Have you ever wondered why people tend to follow the crowd?

It’s because smart decisions are often made from the majority’s vote.

Putting multiple minds together to make a big choice can help your group to make a more informed decision. That’s because groups are made up of different people coming from different backgrounds, with different perspectives on life.

“Diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise.”- James Surowiecki

But, of course, there is some danger in groups, as well. In his book, “The Wisdom of Crowds” James Surowiecki shares his insight on group thinking and tells how we can encourage the crowds we are apart of to work together cohesively.

Big Groups Solve Problems Better

At a livestock fair that took place in 1906, Francis Galton took the estimates of an ox’s weight based on the visitor’s guesses. No one got it quite right, but the median of the answers was only a pound more than the actual weight of the ox. This means that the group guess was more accurate than the individual’s guess.

Another excellent example of this is the show, “Who Wants to Be A Millionaire?” In this show, the contestants have the option to ask the crowd. When they went with the crowd’s answer, 91% of the time it was correct.

However, group-think is not always a positive thing. Sometimes groups can be wrong based on morals. For example, hate groups and angry mobs.

But, this usually doesn’t happen if your group makes their best effort to stay on task, diversify their team, and work together.

Diversify

Groups are much more effective and wiser when they are diverse. This means having people from different backgrounds and cultures.

There are two kinds of groups:

Heterogenous: A group of people of different ages, genders, and religions. These are the groups better at tackling big decisions.

Homogenous: A group of people who come from the same background. This is usually a group of experts on a particular subject. They all share the same mindset, so it’s hard for them to provide new ideas to the group.

A heterogeneous group has an abundance of diverse ideas, compared to the homogenous group that has one or two very similar ideas that aren’t being challenged. Therefore, it is much easier for the homogenous group to make a bad decision.

“Diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise.”- James Surowiecki

But, there is value in having experts in your heterogeneous group. It is all about balance!

Bigger Groups Have More Intelligence

Usually the bigger the group, the bigger its diversity. And, when a group is diverse, there are usually more skills at the hands of its members.

When a group has diverse members, it’s easier to take into consideration minority groups when making a decision, because there is usually someone to voice for them within the group.

“Groups are only smart when there is a balance between the information that everyone in the group shares and...