The Wisdom of Crowds

The Wisdom of Crowds


James Surowiecki


ISBN: 0385721706

Pub. Date: August 2005

Publisher: Knopf Publishing Group

I was trained and am proud to be analytical. Give me a problem, I will analyze it and come up with a plan of attack that is reasonable and likely to succeed. This is what engineers do. It is in our blood.

As I grow older, I encountered problems that just don't fit. That the analytical approach is far from optimal. At first, I was in denial. (How can it be? Every problem can be solved this way. There is something wrong with the definition of the problem.) Now, older, I have acquired skills for other approaches. The most notable one is the strategic approach that involves the evaluation of the situation, understanding the big picture, the smart allocation of resources, and the attention to timing.

The Tipping Point teaches you to watch for, or cultivate, a sudden and massive change. Blink, from the same author, teaches the art of listening to, at least respect, your instincts. This one tries to teach you to trust crowds. All are valuable and non-analytical approaches to problem solving. I am glad to have made new acquisitions to my toolbox.


For groups to perform, the individuals must have unique, no matter how trivially small, pieces of information. They can be wrong, but must be independent. If the group is large enough, the errors cancel out each others and the result will be surprisingly accurate and good. Simply put, diversification yields good results.

Diversification is a key concept in investment. If you buy enough stocks from different sectors of the economy, their volatilities cancel out and you are left with the assured growth of the economy, and not the risk of each stock.

This makes sense. Everyone has a piece of information and, at the same time, lots of random noises. If everyone is independent, the randomness averages out and what's left is the correct information. For example, if I give everyone an evenly distributed random number from positive to negative 1000. The average must be 0, or very close to it. Some will have a number that is very “wrong,” in the sense that it is very distant from the mean. But that does not matter, since large number of group takes care of the errors.

The three important elements of group wisdom are: diversification, independence, and private judgment that makes sure the members do not influence each other.

The chapter on modern corporation is the gem. Corporate America are almost always organized as hierarchical small groups. A CEO has his or her executive staff, each works with the next level but always in small number that ranges from less than 10 to 30. This turns out to be a dangerous way of doing things.

Chapter 6 offers an insight to my daily life in China. Why are American merchants more honest than their Chinese counter-parts? When you shop in America, you have relatively high confidence that you will not be grossly taken advantage of. In China, it is a crap shoot. Intense bargaining is normal, common, and very tiring. Why do everyone must waste so much energy to make sure they are not paying more than other shoppers? Because China is not capitalistic enough.

Don't get me wrong. This country is more aggressive in pushing privatization and market driven economy than any other one (including US). But they have not practiced capitalism long enough. As the result, they emphasize heavily on short-term gains that encourage exploitation for one-time deals. Mature companies, and citizens, learned that long-term gains are much better. They, therefore, establish practices that are honest and fair, since that's the only way for long-term business relationship.

To profit long and more, individuals must sacrifice some short-term benefits and be a bit less selfish. Act for the good for many is beneficial to self for the long run. Gush, we just have to have faith in this. Do we?

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