Thursday, December 6, 2007

The Wisdom of Crowds

James Surowiecki’s The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations makes a good read.

The book talks about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group.
However , Not all crowds (groups) are wise. Consider, for example, mobs or crazed investors in a stock market bubble. Etc.According to Surowiecki, these key four elements are required to form a ‘wise crowd’.

Diversity of opinion -Each person should have private information even if it's just an eccentric interpretation of the known facts.
Independence -People's opinions aren't determined by the opinions of those around them.
Decentralization -People are able to specialize and draw on local knowledge.
Aggregation –Some mechanism exists for turning private judgments into a collective decision

A must read....

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