Geoff Wisner

The Wisdom of Crowds

by James Surowiecki. Doubleday, 2004. 296 pages.

Like The Tipping Point (to which two of this book's blurbs compare it) The Wisdom of Crowds uses a variety of intriguing examples to explain human behavior. And like The Tipping Point, this book has many interesting implications for marketers, business managers, and decision makers of all kinds.

One of the author's most striking examples comes early in the book. The British scientist Francis Galton attended a country fair in 1906 and witnessed a contest to guess the weight of an ox after it was slaughtered and dressed. Thinking he might learn something by analyzing the distribution of guesses, when the contest was over he collected the tickets and calculated, among other things, the mean average. Since only some of those in the crowd had any expertise in livestock, he didn't expect the average guess to be very accurate.

He was wrong: The average guess was 1,197 pounds. The weight of the ox was 1,198 pounds.

The lesson -- borne out in many other situations -- is that decisions made by a large group of people (assuming the group consists of people with a variety of points of view who are acting independently) are usually more accurate than decisions made by the best-informed individuals. Another example: The audience for Who Wants to Be a Millionaire? picks the right answer to Regis's questions 91% of the time, while the contestants' hand-picked "lifeline" experts are only right 65% of the time.

This phenomenon holds true for predicting election results, finding lost submarines, and even determining blame for the explosion of the Challenger space shuttle. (Investors dumped Morton Thiokol almost at once, though it took months before the company was identified as the source of the defective part.)

It is not true, however, that decisions made by any kind of group will be accurate. Small homogeneous groups may succumb to "groupthink," so that key assumptions are never questioned. (The disastrous Bay of Pigs invasion, the author argues, was the result of groupthink.) Attitudes may become polarized, so that several people with a mild preference for option A have a strong preference for option A by the time they've finished talking about it. When a subject is framed in a certain way at the outset of a meeting, or a discussion is dominated by one or two talkative people, or participants defer to those of higher status, decisions may be faulty.

Some of the author's illustrations come from the animal kingdom. Although a single bee is not all that bright, collectively they are very efficient at finding food. Scout bees are sent out in various directions. When they find a source of nectar they return and perform a "waggle dance" that expresses the quality of the source. Forager bees respond to the signal and set out to gather food: more of them to the sources that look most promising.

Capuchin monkeys show that for animals as well as people, simple self-interest is not the only factor that goes into decision-making. Social conventions and ideas of right and wrong are also important. When monkeys working in pairs were trained to trade a pebble for food, 95% of them were happy to do so. But once the researchers started giving one monkey a grape and the other only a slice of cucumber in exchange for a pebble, 40% of the "cheated" monkeys stopped trading, even though this meant getting no food at all. Apparently even monkeys care about fair trade.

What are the implications of the ideas in this book for a company? Here are some of the most basic:

Don't let the CEO decide. CEOs are highly compensated for their ability to make major business decisions, such as when to carry out a merger. Yet the fact that two-thirds of mergers reduce shareholder value indicates they are often wrong.
Don't let the "expert" decide. Experts may know the subject better than any other individual, but experts disagree among themselves, and they are just as likely as ordinary people to overestimate their own decision-making ability.
Don't let a small group of like-minded people decide. Bring unusual perspectives into the mix and encourage dissent. "Intelligence alone is not enough, because intelligence alone cannot guarantee you different perspectives on a problem."
Get outside feedback whenever possible. Hold focus groups, meet with customers, conduct one-on-one research studies.
Don't put all your eggs in one basket. Rather than spending a lot of effort trying to come up with the one big silver-bullet idea, try out a lot of different ideas on a small scale. Send out a lot of scout bees, and see what they come back with. "The steam-powered car, the picturephone, the Edsel, the Betamax, pen computing: companies place huge bets on losers all the time. What makes a system successful is its ability to recognize losers and kill them quickly.... Sometimes the messiest approach is the wisest."



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Geoff Wisner The Wisdom of Crowds by James Surowiecki. Doubleday, 2004. 296 pages. Like The Tipping Point (to which two of this book's blurbs compare it) The Wisdom of Crowds uses a variety of intriguing examples to explain human behavior. And like The Tipping Point, this book has many interesting implications for marketers, business managers, and decision makers of all kinds. One of the author's most striking examples comes early in the book. The British scientist Francis Galton attended a country fair in 1906 and witnessed a contest to guess the weight of an ox after it was slaughtered and dressed. Thinking he might learn something by analyzing the distribution of guesses, when the contest was over he collected the tickets and calculated, among other things, the mean average. Since only some of those in the crowd had any expertise in livestock, he didn't expect the average guess to be very accurate. He was wrong: The average guess was 1,197 pounds. The weight of the ox was 1,198 pounds. The lesson -- borne out in many other situations -- is that decisions made by a large group of people (assuming the group consists of people with a variety of points of view who are acting independently) are usually more accurate than decisions made by the best-informed individuals. Another example: The audience for Who Wants to Be a Millionaire? picks the right answer to Regis's questions 91% of the time, while the contestants' hand-picked "lifeline" experts are only right 65% of the time. This phenomenon holds true for predicting election results, finding lost submarines, and even determining blame for the explosion of the Challenger space shuttle. (Investors dumped Morton Thiokol almost at once, though it took months before the company was identified as the source of the defective part.) It is not true, however, that decisions made by any kind of group will be accurate. Small homogeneous groups may succumb to "groupthink," so that key assumptions are never questioned. (The disastrous Bay of Pigs invasion, the author argues, was the result of groupthink.) Attitudes may become polarized, so that several people with a mild preference for option A have a strong preference for option A by the time they've finished talking about it. When a subject is framed in a certain way at the outset of a meeting, or a discussion is dominated by one or two talkative people, or participants defer to those of higher status, decisions may be faulty. Some of the author's illustrations come from the animal kingdom. Although a single bee is not all that bright, collectively they are very efficient at finding food. Scout bees are sent out in various directions. When they find a source of nectar they return and perform a "waggle dance" that expresses the quality of the source. Forager bees respond to the signal and set out to gather food: more of them to the sources that look most promising. Capuchin monkeys show that for animals as well as people, simple self-interest is not the only factor that goes into decision-making. Social conventions and ideas of right and wrong are also important. When monkeys working in pairs were trained to trade a pebble for food, 95% of them were happy to do so. But once the researchers started giving one monkey a grape and the other only a slice of cucumber in exchange for a pebble, 40% of the "cheated" monkeys stopped trading, even though this meant getting no food at all. Apparently even monkeys care about fair trade. What are the implications of the ideas in this book for a company? Here are some of the most basic: Don't let the CEO decide. CEOs are highly compensated for their ability to make major business decisions, such as when to carry out a merger. Yet the fact that two-thirds of mergers reduce shareholder value indicates they are often wrong. Don't let the "expert" decide. Experts may know the subject better than any other individual, but experts disagree among themselves, and they are just as likely as ordinary people to overestimate their own decision-making ability. Don't let a small group of like-minded people decide. Bring unusual perspectives into the mix and encourage dissent. "Intelligence alone is not enough, because intelligence alone cannot guarantee you different perspectives on a problem." Get outside feedback whenever possible. Hold focus groups, meet with customers, conduct one-on-one research studies. Don't put all your eggs in one basket. Rather than spending a lot of effort trying to come up with the one big silver-bullet idea, try out a lot of different ideas on a small scale. Send out a lot of scout bees, and see what they come back with. "The steam-powered car, the picturephone, the Edsel, the Betamax, pen computing: companies place huge bets on losers all the time. What makes a system successful is its ability to recognize losers and kill them quickly.... Sometimes the messiest approach is the wisest."