Saturday, October 22, 2011

Wisdom of the Crowds?



"No one is 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

While our culture generally trusts experts and distrusts the wisdom of the masses, a New Yorker magazine business columnist James Surowiecki argues in his book Wisdom of Crowds that "under the right circumstances, groups are remarkably intelligent and are often smarter than the smartest people in them."

To support this almost counter-intuitive proposition, Surowiecki explores problems involving cognition - we're all trying to identify a correct answer, coordination - we need to synchronize our individual activities with others, and cooperation - we have to act together despite our self-interest.

The author argues that f four basic conditions are met, a crowd's "collective intelligence" will produce better outcomes than a small group of experts even if members of the crowd don't know all the facts or choose, individually, to act irrationally.

According to Surowiecki "wise crowds" need
  • diversity of opinion
  • independence of members from one another
  • decentralization
  • a good method for aggregating opinions
The diversity brings in different information. Independence keeps people from being swayed by a single opinion or a leader. People's errors balance each other out. 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.

Surowiecki first developed his ideas for Wisdom of Crowds in his “Financial Page” column of The New Yorker magazine. Many critics found his premise to be an interesting twist on the long held notion that Americans generally question the masses and eschew group or mob mentality.

I am not certain if one can read the current social and political world-wide revolt in the context of Surowiecki's book. Maybe you will have to read Ann Coulter's book Demonic to find the balance.

The Arab Spring succeeded in overthrowing tyrants in Egypt and in Libya.

The Occupy Wall Street crowd is out there to make a revolution, but has yet to make coherent demands. The "diversity" of opinion postulated by Surowiecki is rather counter-productive in this context. The other conditions for a crowd to be a "wise crowd" are not met either. And when you consider who actually is behind the protests on Wall Street and in other American cities, you will come to a conclusion that the crowd is actually a mob led by various interest groups interested in advancing their own ideology. The crowd is only an instrument to achieve the goals of the few who do not wish diversity. The demonstrating crowds seem to be completely oblivious of that fact.

Revolutions have occurred many times through the human history and vary widely as far as the methods and the motivating ideology are concerned. Their results include major changes in culture, economy, and socio-political institutions. Revolutions are always destructive, although the claim of constructing something better and new is always made. The results are often very distinct from the originally envisioned utopia. This fact is quickly disregarded as new order affirms itself in the reality of life.

Ordinary people can typically gain direct power by acting collectively. Because large groups of people have been able to bring about dramatic and sudden social and political change in a manner that normally bypasses established due process, they have also provoked great controversy as the change was, more often than not, a result of mindless violence.

Social scientists have developed several different theories explaining crowd psychology and the ways in which the psychology of the crowd differs significantly from the psychology of those individuals within it. The individuals seem to suspend their own individuality and judgment for the sake of the crowd... at least for as long as the crowd seems to represent their interests. 

In her book Ann Coulter argues that mobs are always destructive. She believes that with the civil rights movement in the sixties, Americans have lost their natural, inherited aversion to mobs. Indeed, most Americans have no idea what they are even dealing with. Only by recognizing the mobs and their demonic nature can America begin to defend itself.

Meanwhile, President Obama supports the Occupy Wall Street demonstrators. He understands their pain. Really? 

It may have escaped the collective consciousness of the demonstrating crowd that it was the President Obama himself who bailed out Wall Street in 2009. After receiving generous donations from what he calls "the fat cats", he had to! Goldman Sachs alone contributed one million dollars to Obama's presidential campaign. But no one seems to care...

By Dominique Allmon