The Madness and Wisdom of Crowds

The always-interesting Marginal Revolution is adding another blogger: James Surowiecki, author of the new book The Wisdom of Crowds. The title immediately brings to mind books like the classic Extraordinary Popular Delusions & the Madness of Crowds. So what's going on here? Are these crowds wise or mad? Here's my take.

Different environments for crowds can lead to different behaviors. Surowiecki gives 4 criteria for crowds to be wise: (1) diversity of opinion; (2) independence of members from one another; (3) decentralization; and (4) a good method for aggregating opinions. While these all contribute to wisdom, I think the key to the wisdom/madness difference is (2). Consider the difference between the Who Wants To Be a Millionaire audience, who are selecting guesses independently, and a mob of people in the street, who are feeding off each others reactions. In the first case "noise" averages out. In the second case, it gets amplified. These two very different feedback systems result in very different results with the same agents.

Some situations fall in between these extremes, of course, like the stock market. While it does a pretty good job at aggregating diverse opinions into an accurate result, it is also sometimes prey to feedback effects. These differences are an interesting example of an emergent phenomenon, where the interactions between agents are crucial in determining the final behavior of the group.

Aside: while voters have quality (1) and a fair bit of (2), our democracy fails badly at (3) and (4).

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Joseph - Yep, it sure does.

Joseph - Yep, it sure does. When you collapse a big preference matrix down to a single choice, you must lose lots of data. That's not a good aggregator.

qwest - Yeah, that theory is profoundly wrong. Figuring out good candidates and policies takes effort, and the voters don't benefit from the effort. When you poll a crowd about a piece of factual information, you get a good answer because many of them know it without needing to research. On the stock market, you profit from doing the research, so you do it. But in voting, you neither know the answer already nor gain from researching it. Therefore the information is not in your crowd, so you can't get it out of your crowd.

In fact, this suggests to me that (1) is not enough. You can't just have a diversity of opinion - what if its all noise and no signal? There must be (1b) a signal in there to extract. No aggregator can create information out of nothing.

hahaha.....oookkkay... i'm

hahaha.....oookkkay... i'm not sure where your going with that.:???:
do you mean 'steel underpants' or more libertarians will cause more 'stealing' of underpants? haha.

This is the basic problem

This is the basic problem with Jude Wanniskis theory about the democratic voting process. He essentially believes that because a large sampling of the population votes, they are 'right' and not only right but they are 'smarter' than us individuals and know better how to allocate our own tax dollars than we do. The gist of it is we should legally leave important decisions to large mobs because they'll come to a better conclusion than our own intuition and experience ever could.

he is saying the mass voting

he is saying the mass voting mechanism is the ultimate engine for determining the 'best path' for society, which is true if 90% of the people who vote are hell bent for redistribution. HELL YAH, if i was a redistributionist i'd be a voting fool too. who would'nt? as a self interested libertarian individual, the mass voting mechanism cannot be trusted to give me an outcome to my liking with any degree of certainty.
very few if any decisions made by the mass have ever had my endorsement. hence its a mathematically useless method for me to get what i want. but i guess(him) living ones entire adult life as a highly paid government consultant/politco inside the beltway tends to color ones thinking, and he gets what he wants, which is another book deal legitimizing redistribution. good for him. not for me

Seems to me the Blogosphere

Seems to me the Blogosphere satisfies all four criteria! :smile:

our democracy fails badly at

our democracy fails badly at (3) and (4).

Doesn't Arrow's Impossibility Theorem show (4) to be impossible, at least regarding democracy?

HELL YAH, if i was a

HELL YAH, if i was a redistributionist iâ??d be a voting fool too. who wouldâ??nt?

I wouldn't. Regardless of your political objectives, voting is a waste of time. Your vote has absolutely zero chance of influencing the outcome of the election. This is true for redistributionists and non-redistributionists alike.

You are being insufficiently

You are being insufficiently cynical, Micha. Voting is a waste of time, even for a redistributionist [R]. But publically arguing that the voting mechanism is a good one - now that is a much more useful activity for an R than a non-R. :evil:

absolutely correct. my use

absolutely correct. my use of the word 'redistributionist' was meant to encapsulate the entire range of voters who vote to 'get something' and not in a persons own philosphical sense. no matter if they know they are 'redistributionists' or not, they just are, and them being dumb enough to vote proves it.

True enough, and publicly

True enough, and publicly arguing that the voting mechanism is a good one might even be useful activity for libertarians, if the hope is that more votes for the LP leads to better publicity for libertarianism in general leads to more libertarians leads to...

1. Steal underpants

2. ???

3. Profit!

qwest, It was a reference to

qwest,

It was a reference to Southpark and an expression of futility and humor regarding libertarian techniques.