Description
Have you watched a failed expert and thought you could have done better? Maybe you weren’t wrong. Groups made up of average people can make surprisingly good decisions. Often, they outperform top experts working alone. This summary tells about this strange phenomenon called the “Wisdom of Crowds”. It is also applied in science, medicine, company, jury and other important fields.
Book Summary
Introduction
We’ve all heard a lot of good things about teamwork, but is working in a group really that good? We can easily find this out by comparing groups with single individuals.
Even the most talented people are left behind by groups from time to time. This rule applies even if the group members are less skilled than the talented person.
People working alone easily make mistakes. We let our emotions and beliefs influence our decisions, but having more people around is different. In this, the mistake of a single person gets canceled and shows him the path to the right solution.
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In this summary, you’ll learn how groups can outperform experts in different fields. This could range from stock market to scientific research. However, for a large crowd to be better than a single person, certain conditions must be met. You’ll also learn how independence, diversity and decentralization can upgrade a group.
Experts control the policy making decisions in every area of our lives, but in reality they do not deserve that much power. By working together, even average people like us can become more successful than these experts. This summary will tell you how you can take your group to the next level.
The Wisdom of Crowds
There is a show that is very popular all over the world: “Who wants to be a millionaire?” That means in our local language “Who will become a millionaire?” This concept has been adopted in the local languages of many countries. In this game, a contestant answers 15 multiple-choice questions. If he gives all the correct answers he wins a prize of $1 million.
In this game, contestants can get the help of 3 life lines. One of them is 50-50, which eliminates two of the four choices. The next is to call someone who may know the answer. The last option is audience poll i.e. asking the audience. Every viewer watching live there uses a small device to submit his answer.
Of all these options, which one will yield the most success? You might be thinking that the option of calling a friend is the best because the contestant will choose only someone who is an expert.
But, these experts are able to answer only 65% of the questions correctly. In comparison, audiences made up of random people have a 91% success rate. This means that there is a 91% chance that the viewers watching the show live in the studio will guess the correct answer.
This shows that a group composed of average people can take better decisions than experts. From the 1920s to the 1950s, several American sociologists tested this theory. For this, a physicist named Norman Johnson designed an experiment in which people had to go through a maze. The smallest possible solution was to take nine turns.
On average, people took 34.3 steps to solve the maze. Then, they were asked to try again. This time, the average solution was 12.8 turn. Next, Johnson collected the decisions each person made at each turn. They averaged these to arrive at a “group decision” for each turning point. By doing this they found that the group’s solution had completed the maze in just 9 steps.
However, this theory is wrong, but not only because it only works in the lab. What about the wisdom of a crowd in the real world? A good example of this is NASA’s space shuttle “Challenger”, which was destroyed in an accident in 1986. Challenger exploded just 73 seconds after its launch. Several million people watched the destruction live on TV.
Shortly after the accident, stock market investors began to react. Four companies were involved in making the Challenger – Lockheed, Rockwell, Morton Thiokol, and Martin Marietta. The stock value of all these companies started falling rapidly.
However, by the end of the day, 3 companies had started to recover. At the same time, when trading stopped, Morton Thiokol had lost 12% of its value.
The remaining companies suffered losses of only about 3%. It is clear that public investors had decided that Morton Thiokol was responsible for the disaster.
No expert could reach this conclusion. Their investigation could not reveal the cause of the crash. It took six months for experts to determine that the cause of the crash was a defect in the space shuttle’s gas seal. This seal was made by Morton Thiokol.
Public investors knew the reason immediately, and rightly so, because this crowd had four characteristics of a sensible group. Their opinions varied, which meant that people gave many different types of information.
The choice of this group was also independent. People had taken the decision to sell Morton Thiokol stock without any influence from people around them. Next, public investors were decentralized, meaning they received information from personal sources rather than from any one central source.
In the end, their judgments were added together. This means that their decisions together created the market value of Morton Thiokol. Thus, if all four conditions – diverse, independent, decentralized and aggregated or combined – are met, a group will always defeat an expert.
The issue of crowd intelligence is not limited to big events like the Challenger crash. These are often seen in most of the routine things of our lives. Globally, the largest user of crowd intelligence is Google.
Google always shows you more correct results than its competitors. This happens because of the ‘PageRank System’. Google ranks websites according to the links in your search results.
For example, if Page 2 hosts a link from Page 1, Page 2 has voted for Page 1. This means that page 1 will appear higher in your search results.
Pages that are linked often rank higher. And who links the pages on the website? This is the crowd or general public who uses Google every day.
Google uses the opinions of the entire Internet to decide which page is more valuable. This system works much better than any other algorithm created by any tech expert.
The Value of Diversity
In the 20th century, almost every car ran on gasoline or diesel. Car manufacturers use combustion engines to power their vehicles. But, when the car was invented, there were many different types of engines.
Thomas Edison had created a battery-powered car in 1899 itself. At the time, many people thought that perhaps there would be charging stations all over the United States. In the early 20th century, boats and trains ran on steam engines. Many people thought that it would be logical to apply the same model to automobiles as well.
But by 1910, gasoline engines began to take over the market. Couldn’t go very far without recharging the electric car. Steam engines took a long time to heat up. Most importantly, the gas-engined car manufacturer was the first to use the mass-production method.
The most important feature of America’s early auto industry was its diversity. Many rich entrepreneurs tried different types of engines. With this, people could choose their favorite option from many options.
A similar phenomenon can be seen in a colony of bees. When a hive is built, the bees need to find a source of nectar to eat, so the group of bees living in that hive send out “scout bees” to find flowers.
When scout bees find a good source of nectar, they return and use a dance to alert their hive. Next, a group of nectar gathering bees follow those scout bees.
According to the quality of the nectar source, the bees of that hive decide which nectar source to use. Now very few bees from this group go to places which are not very good sources and more bees go towards good sources. The result is that the bees distribute themselves equally between moving towards top-quality nectar sources.
In human society, finding a set of diverse solutions is not enough. The group that is choosing the right solution should also be diverse. This happens naturally in major examples, such as the automobile market. It is very difficult to find a place here where there are several million identical people.
But, in a small group like a company board, you have to intentionally create diversity. Otherwise, some biased members may negatively impact the group’s decisions. This can also cause the team to fall into a trap called “groupthink”.
Groupthink occurs when people with the same mindset form a group. Then there is no one to oppose them and question their wrong ideas. Let’s look at the example of the Bay of Pigs invasion of 1961. At that time, the Americans had decided that they would attack Cuba with only 1200 men and capture that country.
Even to an average person this idea may seem stupid. The CIA completely ignored the power of the Cuban Army and the influence of dictator Fidel Castro. They had not even taken into account the size of the island they were going to attack.
The CIA assumed that no one would know that the US had led the attack, even though it was an open secret in Guatemala. This shows that groupthink forces people to take very stupid decisions.
Diversity does not mean that it is necessary to have people of different races, religions and genders. It means being in a group of people with diverse skills, ideas and philosophies. Diversity brings together different viewpoints. It also helps people avoid making wrong decisions by reducing groupthink.
This is why companies benefit by always hiring new employees. He may have less experience, but no one in the company has the latest, up-to-date knowledge like him.
Imagine a group consisting of many average people who think differently. This group will always take better decisions than a group in which experts agree with each other on everything.
This forces us to wonder whether there really are “experts” in certain specific fields or not. Performance in sports or repair and maintenance clearly depends on experience and skill, but what about bigger concepts like “strategy” or “decision making”?
Experts in many different industries are known to make wild predictions. In 1927, Henry Warner of Warner Bros. predicted that no one would want to see films without sound.
IBM’s Thomas Watson predicted in 1943 that ordinary people would never need computers. Fund managers and trading experts often underperform the market.
These examples prove the intelligence or wisdom of the crowd of people. We should not depend only on expert opinion. We should also look at the group’s opinion, especially when the conditions of diversity, independence and decentralization are fulfilled.
Independence
The ‘circular mill’ is a feature of an ant colony that was discovered in the 20th century. Naturalist William Beebe saw a large circle of an army of ants in the jungles of Guiana. They were walking in a 1200-foot circle. Those ants kept roaming in circles in it for two days until most of them fell and died.
Circular mills are formed when ants become separated from their colony. In this, every ant follows the ant ahead of it. This creates a circular mill that can only be broken if some of the ants leave the circle.
Generally, ant colonies function perfectly. No one needs to give them instructions. Every worker ant does not know anything, but by observing the movement of its neighbor it can change its behavior accordingly. Due to their lack of ability to think independently, a circular mill is created.
Humans are not like ants. We do not depend on others’ influence to take decisions. Once again, recall the example of the Challenger disaster and Norman Johnson’s maze, in which we saw how a group of independent and uncoordinated people can make better decisions.
For a group to be intelligent, independence is necessary for two reasons –
First, it avoids similar mistakes. Mistakes do not harm the intelligence of the group unless they are made in the same direction.
The correct solution is found even due to diverse mistakes i.e. different types of mistakes. At the same time, people who depend on each other for information will keep making the same mistakes.
The second reason is that independent members usually have new or different information. This allows groups to explore more than one solution, increasing the chance of choosing the best solution.
A single person may still have useless or inaccurate information, but as long as he is alone he will not make the group less intelligent.
But, man is a social animal. We cannot completely avoid interacting with others and being influenced by them. Just look at the example of mutual fund managers. Two researchers had discovered that most mutual fund managers follow the same strategy.
This is not a beneficial method because if all the investors buy the same stock then they will not get a chance to earn huge profits. Fund managers behave this way because it is safe.
If his strategy fails he cannot be criticized because everyone else also fails. But, this behavior destroys all the competitive advantages a single person has.
The harms caused by dependence are not just caused by thoughtless behavior. Let’s look at the example of the telecommunication bubble of the 1990s.
In its early days, the Internet was growing tenfold every year. Telecom companies were investing billions of dollars in growth. Regular investors were buying stocks of these fast growing companies.
Investors were following what is called ‘information cascade’. They had seen early tech investors make big profits so they followed that example because it was a proven success strategy. Information cascade is not the same as following a trend. On the surface these are logical decisions.
Around 1996, the growth rate of the Internet gradually began to slow down. By the early 2000s, many telecom companies had gone bankrupt. His investors had lost everything.
Does this mean that we should depend only on ourselves for information? No, it would not be practical to do so. One person cannot know everything. Information and expertise are divided among people. By copying each other, we can make use of everyone’s unique knowledge.
However, copying others benefits the group only if it is done intelligently. This means do not blindly follow what other people are doing. You have to try to understand the reason behind their behavior.
In a 1943 study, an excellent demo of intelligent imitation was given. In the early 20th century, farmers in Iowa were introduced to a hybrid variety of corn. It was advertised in such a way that it could increase the yield by 20%.
Most of those farmers did not try to learn much about corn, but some of them did their own research and tried this new hybrid variety. The remaining farmers waited to see whether the new variety proved successful or not. Only when the first group had a very good harvest did the rest of the farmers try the hybrid corn.
The other group did not grow new corn on their entire farm. He had just grown it in a small area to see if he could get the same results as the first group. It took 9 years for half of Iowa’s farmers to adopt the new corn.
In this example an information cascade occurred, but everyone benefited because they copied intelligently.
Anyway, see you again with the powerful explanation of the new movie.
