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The Wisdom of Crowds

[COMMENT:  The following extraordinary article tells us much about human psychology, and how we know things. 

The more I think of this essay, the more I think it is right on target.  It speaks wonderfully for classical conservatism, which relies not on the "experts", but on the accumulated wisdom of lots of people over lots of time -- in other words, tradition.  We do, indeed, need experts, but only to inform the discussion, not to make the decisions.  They are only one of the crowd, and have a place to educate the rest of us, not to direct our lives in the manner of socialists and other collectivists.

In a free society (an important qualification), tradition is not the dead hand of the past asserting itself on the present, it is the constantly tested wisdom of the past being accumulated in the storehouses of truth.  Much of it is pragmatic, much of it is science, much of it is just common sense. 

It is precisely when the elite shut down the freedom of public discussion that tradition becomes the dead hand of the past and needs to be refreshed by the open windows of honest public debate. 

That is why we have jury trials for the most important cases.  They are judged by the people, not by the experts (judges).  The experts keep wanting to assert their authority over the people, so we the people must keep on our toes and keep our elite and those in power in their place. 

Those contemporary pseudo-liberalist elite (i.e., who do not liberate) rely primarily on the intellect of the expert, the philosopher-king of Plato, the one who has a vision which he thinks ought to be imposed on everyone (as Marx, Hitler, Stalin, etc., etc.).   They say they are "for the people", but that is nonsense.  They are for their control of things.  If they were for the people, they would insist on the people making their own freewill, freemarket choices about public policy decisions.  Socialists are not for the people.  They do not trust the people to make their own life decisions (welfare, education, religion, retirement, etc.). 

But a Godly people do know how to go about life freely, intelligently, and gracefully.  Honest (Jeffersonian) liberals, who value honest public debate, are those who go about building the tradition for later generations, which is then conserved by the honest conservatives.  Genuine conservatives and genuine liberals are part of the same family, and are both necessary for a healthy society.    E. Fox]

Excerpt from below...:

"Since 1988, the University of Iowa has run the
Iowa Electronic Markets, which allow people to
bet on the outcome of presidential elections. As
a predictor, the Iowa Electronic Markets have
produced extraordinarily accurate judgments,
often doing better than professional polling
organizations. In the week before each of the
last four elections, the predictions in the Iowa
market have shown an average absolute error of
just 1.5 percentage points, a significant
improvement over the 2.1 percentage point error
in the final Gallup Polls. Or consider the
Hollywood Stock Exchange, in which people
predict Oscar nominees and winners, as well as
opening weekend box-office successes. Here, too,
the level of accuracy has been exceptionally
impressive, with (for example) correct
predictions of thirty-five out of forty Oscar
nominees in 2002."

(This cat is smart. Listen. d.)

Linked: http://www.tnr.com/doc.mhtml?pt=BulT1I7dWaPtjtyUfMCrMA==

Mobbed Up

a book review
by Cass R. Sunstein

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
(Doubleday, 296 pp., $24.95)

In the summer of 2003, analysts at the Department
of Defense had an unusual idea. To predict
important events in the world, including
terrorist attacks, they would create a kind of
market in which ordinary people could actually
place bets. The proposed Policy Analysis Market
would allow each of us to invest in our
predictions about such matters as the growth of
the Egyptian economy, the death of Yasir Arafat,
and the likelihood of terrorist attacks in the
United States. Investors would win or lose money
on the basis of the accuracy of their
predictions. Predictably, the Policy Analysis
Market produced a storm of criticism. Ridiculed
as "offensive" and "useless," the proposal was

Amid the war on terrorism, why was the Defense
Department so interested in the Policy Analysis
Market? The answer is simple: it wanted to have
some help in predicting geopolitical events,
including those that would endanger American
interests, and it believed that a market would
provide that help. It speculated that if a large
number of people could be given an incentive to
aggregate their private information, in the way
that the Policy Analysis Market would do,
government officials would learn a great deal.

Does this idea seem ludicrous? Since 1988, the
University of Iowa has run the Iowa Electronic
Markets, which allow people to bet on the
outcome of presidential elections. As a
predictor, the Iowa Electronic Markets have
produced extraordinarily accurate judgments,
often doing better than professional polling
organizations. In the week before each of the
last four elections, the predictions in the Iowa
market have shown an average absolute error of
just 1.5 percentage points, a significant
improvement over the 2.1 percentage point error
in the final Gallup Polls. Or consider the
Hollywood Stock Exchange, in which people
predict Oscar nominees and winners, as well as
opening weekend box-office successes. Here, too,
the level of accuracy has been exceptionally
impressive, with (for example) correct
predictions of thirty-five out of forty Oscar
nominees in 2002.

In fact, prediction markets are springing up all
over the Internet, allowing people to make bets
on the likely outcomes of sports, entertainment,
finance, and political events. On
tradesports.com, people have been betting on
whether Donald Rumsfeld will resign soon
(extremely unlikely), whether Osama bin Laden
will be captured by June 2004 (extremely
unlikely), whether John Edwards will be selected
as John Kerry's running mate (a good chance, but
probably not), and whether George W. Bush will
be re-elected (more likely than not). One can
imagine prediction markets on any number of
questions: Will gas prices reach $3 per gallon?
Will cellular life be found on Mars? Will
smallpox return to the United States? Will there
be a sequel to Master and Commander? Will the
Federal Communications Commission be abolished?
(I didn't make these up; they are actual or
proposed questions on existing markets.)

ames Surowiecki is fascinated by prediction
markets. In his opinion, they demonstrate that
crowds are often wise. He rejects the widespread
view that groups of ordinary people are usually
wrong--and that we do better to ignore them and
follow experts instead. Even when individuals
blunder, he believes, groups can excel: "Under
the right circumstances, groups are remarkably
intelligent, and are often smarter than the
smartest people in them." This is so even when
"most of the people within the group are not
especially well-informed or rational." What is
wonderful, and surprising, is that "when our
imperfect judgments are aggregated in the right
way, our collective intelligence is often
excellent." Instead of chasing experts, we
should consult that collective intelligence.

As an example, Surowiecki points to the
television game show Who Wants to Be a
Millionaire?, on which contestants, if stumped,
are permitted either to consult the studio
audience or to place a call to a trusted friend
or family member (selected in advance precisely
because of his or her knowledge and
intelligence). As it happens, the trusted allies
perform well, producing correct answers 65
percent of the time. But the studio audience
performs much better, picking right answers a
remarkable 91 percent of the time. Surowiecki
also invokes an astonishing finding by the
British scientist Francis Galton, who tried to
draw lessons about collective intelligence by
examining a competition in which contestants
guessed the weight of a fat ox at a regional
fair in England. The ox weighed 1,198 pounds;
the average guess, from the 787 contestants, was
1,197 pounds. Or consider Google, the
astonishingly successful Internet search engine.
Why does Google work so well? Surowiecki
contends that its technology "is built on the
wisdom of crowds." The company's founders,
Sergey Brin and Lawrence Page, explain that the
system "capitalizes on the uniquely democratic
character of the Web." Google is good at telling
you which site you are likely to want for one
reason: it uses the collective "votes" of many
other people.

urowiecki is concerned with how crowds can solve
three kinds of problems. The first are
cognitive. These are factual questions with
definite solutions, identifiable now or in the
future. Who will win the World Series? How far
from the Sun is the Earth? Will a certain
surgery be successful? A second set of problems
involve coordination. Individuals often need to
select a shared course of action--driving on the
same side of the road or meeting at a certain
place. A third set involve cooperation. If
people follow their self-interest, they might
fail to cooperate with one another, and hence
they will lose their opportunities for mutual
advantage. Surowiecki contends that groups of
people show far more cooperation than we might

Surowiecki does not make the implausible
suggestion that all crowds are wise. To qualify
as such, a crowd needs to satisfy three
conditions. It must be diverse; its members must
be independent; and it must have a "particular
kind of decentralization." Each of these
conditions is designed to ensure what most
interests Surowiecki, which is the emergence and
the aggregation of information that group
members have. Diversity is important simply to
ensure that the group has a lot of information.
If a crowd consists of nearly identical people,
it is unlikely to be wise, because the group
will not know more than the individuals of whom
it is composed. Independence is necessary to
ensure that people say what they know rather
than hide it. Surowiecki is alert to the fact
that groups often go wrong if members simply
follow one another without pooling individually
held information. Hence he notes, correctly,
that organizations often do best if each
individual behaves independently and does not
pay a great deal of attention to the acts and
the statements of others. "The smartest groups,"
he writes, "are made up of people with diverse
perspectives who are able to stay independent of
each other." The worst-performing investment
clubs in the United States consist of people who
like one another, socialize together, and show a
great deal of consensus. The best performers
consist of people who do not see each other much
and welcome dissent.

In calling for independence, Surowiecki
emphasizes the serious risks associated with
"information cascades," which occur when people
neglect what they know and pay attention instead
to the signals given by others. (In social
science, such cascades have been found to arise
not only among ordinary people choosing
restaurants, sneakers, and political candidates,
but also among doctors making diagnoses and even
federal judges deciding cases.) The problem with
information cascades is that group members are
likely to do far worse than they would if
everyone disclosed his or her private
information. By pointing to the dangers of bad
cascades, Surowiecki signals the importance of
starting with a "wide array of options and
information" and of having at least a few people
who are willing "to put their own judgment ahead
of the group's, even when it's not sensible to
do so." Much of the time, Surowiecki writes,
groups do best if their members pay little
"attention to what everyone else is saying."

What about decentralization? Of Surowiecki's
three conditions, this is the least intuitive.
He attempts to clarify it by focusing on the war
against terrorism. To wage that war
successfully, of course, a great deal of
information must be assembled. Surowiecki is
critical of the widespread idea that what is
needed is more centralization. Good solutions
are far more likely to follow, he argues, "if
you set a crowd of self-interested, independent
people to work in a decentralized way on the
same problem." Surowiecki seeks processes in
which independent people, all armed with their
own knowledge, are able to attend to problems
"while also being able to aggregate that local
knowledge and private information into a
collective whole." The Iraq war is Surowiecki's
example. Local American commanders had
considerable latitude to act on their own, but
they were also able to communicate rapidly, thus
allowing successful overall strategies to
develop from a multitude of local judgments.
Surowiecki concludes that successful wars "may
depend as much on the fast aggregation of
information from the field as on preexisting,
top-down strategies." (The problems that have
arisen since the end of formal hostilities raise
obvious difficulties for Surowiecki's claims;
perhaps information on the ground is not being
properly aggregated, or perhaps American
officials don't have enough information on the
ground to stop continuing attacks.) For
intelligence relating to terrorism, Surowiecki
argues that what is needed is aggregation, not
centralization. And here Surowiecki returns to
the ill-fated and roundly condemned Policy
Analysis Market, suggesting that it "was
potentially a very good idea."

Surowiecki is also fascinated by the very
different phenomenon of social coordination. He
points to the behavior of pedestrians on streets
and sidewalks, where individuals are able to
coordinate their movement so as not to bump into
one another. Surowiecki pays tribute to "the
beauty of a well-coordinated crowd, in which
lots of small, subtle adjustments in pace and
stride and direction add up to a relatively
smooth and efficient flow," as people "are
constantly anticipating each other's behavior."
He thinks that pedestrian behavior helps to
explain a great deal about the human ability to
understand and to follow norms or conventions
that other people follow at the same time.

Consider a little experiment by Thomas
Schelling, who put the following puzzle to law
students at Yale in 1958: You are going to meet
someone in New York City. You do not know when
or where, and you are unable to talk to the
other person ahead of time. What time and place
do you choose? Almost all the students said that
they would meet at noon, and more than half said
that they would meet at the information booth at
Grand Central Station. As a more practical
example, consider the universally accepted rule
of first-come, first-served seating in buses,
subways, and movie theaters. In Surowiecki's
account, people are extremely good at generating
conventions by which they organize their

Solutions to coordination problems are stable;
once we hit upon a shared approach, we are
likely to stick to it. Unfortunately, social
cooperation is much more fragile, simply because
each cooperator has an incentive to defect.
Suppose that everyone in a certain community
thinks that the community will be better off if
people engage in a recycling program. Even if
everyone agrees, some people will refuse to
participate, thinking that for them as
individuals the costs of recycling exceed the
benefits, even if the reverse is true for the
group as a whole. Self-interested human beings
try to "free ride" on the cooperation of others.
And positing that people are self-interested,
many economists expect cooperation to be rare.
What interests Surowiecki is that cooperation is
not rare at all. He emphasizes the enormous
importance of reciprocity to human endeavors.
Usually people will participate in a cooperative
endeavor as long as they believe that other
people are doing so too. Borrowing a claim by
the political scientist Margaret Levi,
Surowiecki concludes that people are "contingent
cooperators." Most people don't want to be
selfish jerks, but they also don't want to be
dupes or fools. They will contribute to the
common good if they believe that this is the
general practice.

Surowiecki uses these points to explore a wide
range of social phenomena, including scientific
collaboration, stock prices, and corporate
performance. One of his most interesting
discussions involves the Columbia disaster and
less-than-wise group deliberations at NASA. In
Surowiecki's account, NASA emphasized consensus
over dissent, and so it failed to take advantage
of the information held by its engineers, who
were perfectly aware of the underlying
uncertainties. Stressing "the utter absence of
debate and minority findings" in pre-launch
discussions about the Columbia, Surowiecki
argues for the need to counteract the risks
associated with "group polarization." When group
polarization occurs, people engaged in
deliberation with one another end up thinking a
more extreme version of what they thought before
they started to talk. For example, those who
believe that global warming is a serious problem
are likely, as a result of internal discussions,
to come to believe that global warming is an
extremely serious problem; people who think that
the Department of Justice is compromising civil
liberties are likely to think, after they talk
with one another, that the Department of Justice
has no respect for civil liberties at all. So
too officials at NASA, thinking that space
shuttles are essentially safe, might well end up
believing that safety is not a problem--even if
several of them have private information
suggesting otherwise.

Surowiecki knows that the phenomenon of group
polarization raises problems for his thesis. If
group members predictably end up thinking a more
extreme version of what they thought before,
what makes them likely to be wise? His answer is
that groups need to contain safeguards to ensure
that individual judgments are genuinely
independent. NASA would have done far better if
it had promoted a diversity of opinions and
asked people to say what they really thought,
rather than allowing internal pressures to lead
people to squelch their doubts. The lesson here
extends to many private and public institutions.

Surowiecki is aware that his celebration of wise
crowds has implications for democracy. In light
of his general argument, Surowiecki is
suspicious of rule by a "technocratic elite,"
insisting that insulated officials lack the
information to produce good decisions. But he
does not think that democracies are really
solving cognition problems; that's not their
business. The reason is that unlike in cases
involving simple facts, we "have no standard
that allows us to judge a political decision to
be 'right' or 'wrong.'" For all the public talk
about the "common good," that idea is too
disputed to provide objective solutions to
political disputes. Surowiecki concludes that
democracy should be seen as a way not to produce
correct answers to particular questions, but to
deal with "the most fundamental problems of
cooperation and coordination: How do we live
together? How can living together work to our
mutual benefit?" On that count, democracy has
crucial advantages.

The performance of groups is a wonderful subject,
and Surowiecki has a remarkable eye for the
telling anecdote, illustrating abstract claims
with vivid examples. His central point is
convincing. Groups, and even crowds, can be
wiser than most and sometimes even all of their
members, at least if they aggregate information.
But there is a serious problem with Surowiecki's
discussion: he does not provide an adequate
account of the circumstances that make crowds
wise or stupid. Note first that the "conditions"
that he identifies (diversity, independence, and
decentralization) are neither necessary nor
sufficient for the wisdom of crowds. On his own
analysis, those are the conditions for the
solution of problems of cognition, not problems
of coordination or cooperation. People do not
have to be diverse, or independent, to choose
Grand Central Station as a meeting place in New
York. If we want people to coordinate or to
cooperate, it might well be best if they are
similar and if they follow one another. To solve
Surowiecki's three kinds of problems, quite
different conditions come into play. In any
case, coordination and cooperation problems
don't come in neat boxes; life turns up all
sorts of mixtures (consider marriage) that
Surowiecki neglects.

Even for cognition problems, some groups
sometimes perform best if their members are not
independent and if they listen closely to one
another. Groups can benefit when error-prone
people silence themselves and follow the views
expressed by their most sensible members. If the
group contains authorities on the question at
hand, members ought to listen closely--and
possibly to shut up. Diversity is usually good,
above all because it allows groups to acquire
more information. But what is needed is not
diversity as such, but diversity of the right
kind. NASA's judgment would not have been
improved if the relevant officials had included
members of the Flat Earth Society, or people who
believed that aliens are among us or that space
flight is simply impossible.

All of these points suggest that the key
question is how much information is held by
various group members. Most generally, groups
are wise only if their members actually know
something about the relevant questions. Suppose
that the studio audience in Who Wants to Be a
Millionaire? were asked not about popular
culture but instead about the number of
decisions made by the Supreme Court every year.
Is there any reason to expect that the majority
or even the plurality would be right? Galton's
crowd was good at judging the weight of a fat
ox. But if its members were asked about the
number of atoms in that ox, the median guess
wouldn't be very reliable. (To have a reliable
average response, the answers have to be better
than random, and there cannot be a systematic
bias in one or another direction.) Or imagine
that a group of law professors is making
decisions about how to build a space shuttle.
They are unlikely to decide well, simply because
law professors tend to know nothing about space
shuttles. (I undertook a little experiment,
asking law professors to guess the weight of the
fuel used on a space shuttle; the right answer
is 4.6 million pounds, and I won't embarrass my
colleagues by announcing their answers, except
to say that the average was way off.)

Surowiecki thinks that the "simplest way to get
reliably good answers is just to ask the group
each time." Judging the numbers of beans in a
jar, groups almost always outperform most of
their individual members. (Try it and you'll
see.) Asking two hundred students to rank items
by weight, one experimenter found that the
group's estimate was 94 percent accurate--a
figure excelled by only five individuals in that
group. But it doesn't follow that groups will
always, or generally, produce good answers.
Everything depends on what the relevant people
know. If you ask a group of randomly selected
people about how to perform heart surgery, you
will probably do better than if you asked a
randomly selected individual; but you would do
better still if you asked someone who actually
knew how to perform heart surgery. Surowiecki
loads the dice by pointing to areas in which
good answers come from properly aggregating
information that is held by many. In many areas,
it is far more sensible to consult specialists.

The uses and the limits of Surowiecki's argument
are helpfully approached via the Condorcet Jury
Theorem, a significant omission from
Surowiecki's presentation. Suppose that people
are answering a common question with two
possible answers, one false and one true, and
that the average probability that each voter
will answer correctly exceeds 50 percent. The
Condorcet Jury Theorem holds that if each member
of the group is answering independently, the
probability of a correct answer, by a majority
of the group, increases toward certainty as the
size of the group increases. The theorem is
based on some simple arithmetic, the details of
which are irrelevant here. Its importance lies
in the demonstration that groups are likely to
do better than individuals, and large groups
better than small ones, if majority rule is used
and if each person is more likely than not to be
correct. The crucial proviso is the last one. If
each person is more likely than not to err, then
the theorem's prediction is reversed: the
probability of a correct answer, by a majority
of the group, decreases toward zero as the size
of the group increases! It follows that groups
are error-prone if most of their members are
likely to blunder.

Surowiecki might object that some crowds can be
wise even when ignorance is widespread. Consider
the astonishing accuracy of the Iowa Electronic
Markets (and other prediction markets), in which
good judgments come from groups of investors
that include many people who know little and are
perhaps more likely to be wrong than to be
right. But we cannot easily generalize from
prediction markets, because they have several
distinctive features. Most important, they do
not simply rely on the median or average
judgment of a randomly selected group of people.
They are genuine markets, in which people
voluntarily choose to participate, presumably
because they think they know something. In
addition, people are permitted to buy and to
sell shares on a continuing basis. In these
circumstances, accurate answers can emerge even
if only a small percentage of participants have
good information.

In the Iowa Electronic Markets, it turns out
that 85 percent of the traders aren't so smart.
They hold onto their shares for a long period
and then just accept someone else's prices. The
market's predictions appear to be driven by the
other 15 percent--frequent traders who post
their offers rather than accepting those made by
other people. The broader point is that to work
well, prediction markets do not require accurate
judgments by anything like the majority of
participants. In this sense, prediction markets
are very different from judgments by ordinary
crowds. Surowiecki's claims about group wisdom
don't adequately emphasize the unique
characteristics of these markets.

Surowiecki might have been expected to celebrate
the cognitive virtues of democratic
judgments--to suggest that a system that allows
a voice for heterogeneous people and that
encourages dissent is likely to come to sensible
decisions, simply because it heeds the wisdom of
the crowd. If 51 percent of voters support
George W. Bush, maybe we have reason to think
that they are right. But Surowiecki does not
make this argument. As I have said, he insists
that in the democratic domain we lack standards
permitting us to distinguish decisions that are
right from those that are wrong. But political
decisions depend crucially on predictions. Will
large deficits significantly increase interest
rates? Will pre-emptive wars increase or
decrease the threat of terrorist attacks? Will
tax cuts spur economic growth? Problems of
cognition are absolutely central to democratic
governance. Of course democratic judgments often
involve disputed judgments of value, for which
demonstrably objective evidence is hard to find.
Are pre-emptive wars just? Is economic growth
more important than generous social safety nets?
Still, in many matters government's performance
is improved, or undermined, because of how it
deals with cognition problems, and Surowiecki
does not acknowledge this.

Return here to NASA, whose failures have been
partly a product of a culture that disfavors
dissent. In fact, group polarization is a
pervasive problem in government circles, where
like-minded officials often end up holding a
more extreme version of the view with which they
began. Surowiecki offers the example of the Bay
of Pigs disaster, in which President Kennedy's
advisers squelched their private doubts and
developed unjustified enthusiasm for a ludicrous
invasion plan predicated on the absurd thought
that twelve hundred people could unseat Castro
and take over Cuba. Is it too speculative to
suggest that the current problems in Iraq are
partly a product of group polarization within
the executive branch--and that those problems
could have been anticipated if the White House
had had a better process for aggregating
privately held information?

Franklin Delano Roosevelt's famously
disorganized and much-criticized White House,
with confusing lines of authority and multiple
people working on similar tasks, was ideally
suited to the production of a wide range of
views and information. In this light,
Surowiecki's dismissal of the idea that
sometimes democracy faces cognition problems
prevents him from exploring, or even seeing,
some possible lessons for how to structure
democratic institutions. In war and in peace,
such institutions could take much more
aggressive steps to elicit and to use existing
information, above all by creating mechanisms to
aggregate what people know.

* * * * * * * * * * * * * * * *

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