Sunday, March 23, 2008

The Wisdom of Crowds - James Surowiecki

This is such a great book and so very timely! Originally published in 2004 and this edition in paperback having come out in 2005, the information is as timely in 2008 as it was when written. Of great interest to me is the amount of space at the very end of the book that is given to the stock market and the political process.

The main thesis of the book is that the collective opinion of any crowd, when averaged out, is more accurate and far wiser than the most intelligent individuals within that group. Time and again research supports this assertion statistically, and there are studies and examples throughout the book that illustrate how collective decision making has both triumphed and failed.

Central to the collective wisdom of any group is diversity. No matter how small the group, no matter what the task, diversity is key. Even the least knowledgeable and inexperienced individuals in a crowd bring much needed perspective and balance to the whole. James Surowiecki, the book's author and a New Yorker business columnist, points out that this concept is counter intuitive to what we believe about intelligence and the decision making process. This is why often it is not employed in situations where it could prove to be most helpful. Corporations are a great example of how decision making tends to be placed in the hands of an elite few, and the people on the front lines and those closer to the product or service are not involved in decision making. This leads to a poorer quality of decision than might otherwise have been reached had all opinions been taken into consideration and then averaged out.

This is an enjoyable and engaging book. Even the chapters with material that was quite foreign to me - like betting and point spreads - I was able to grasp and understand. It's also one of the best tutorials I've ever read on how the stock market functions, particularly how bubbles form and then bust. I highly recommend the book and can't think of any organization or group that would not benefit from understanding the wisdom of crowds.