The Wisdom of Crowds

The Wisdom of Crowds is a brilliant but accessible biography of an idea, one with important lessons for how we live our lives, select our leaders, conduct our business, and think about our world.

Could you define "the crowd?"
A "crowd," in the sense that I use the word in the book, is really any group of people who can act collectively to make decisions and solve problems. So, on the one hand, big organizations—like a company or a government agency—count as crowds. And so do small groups, like a team of scientists working on a problem. But just as interested—maybe even more interested—in groups that aren't really aware themselves as groups, like bettors on a horse race or investors in the stock market. They make up crowds, too, because they're collectively producing a solution to a complicated problem: the bets of people betting on a horse race determine what the odds on the race will be, and the choices of investors determine stock prices.

Under what circumstances is the crowd smarter?
There are four key qualities that make a crowd smart. It needs to be diverse, so that people are bringing different pieces of information to the table. It needs to be decentralized, so that no one at the top is dictating the crowd's answer. It needs a way of summarizing people's opinions into one collective verdict. And the people in the crowd need to be independent, so that they pay attention mostly to their own information, and not worrying about what everyone around them thinks.

What kind of problems are crowds good at solving and what kind are they not good at solving?
Crowds are best when there's a right answer to a problem or a question. (I call these "cognition" problems.) If you have, for instance, a factual question, the best way to get a consistently good answer is to ask a group. They're also surprisingly good, though, at solving other kinds of problems. For instance, in smart crowds, people cooperate and work together even when it's more rational for them to let others do the work. And in smart crowds, people are also able to coordinate their behavior—for instance, buyers and sellers are able to find each other and trade at a reasonable price—without anyone being in charge. Groups aren't good at what you might call problems of skill—for instance, don't ask a group to perform surgery or fly a plane.

Can you give an example of a current company that is tapping into the "wisdom of crowds?"
There's a division of Eli Lilly called e.Lilly, which has been experimenting with using internal stock markets and hypothetical drug candidates to predict whether new drugs will gain FDA approval. That's an essential thing for drug companies to know, because their whole business depends on them not only picking winners—that is, good, safe drugs—but also killing losers before they've invested too much money in them.

Excerpt from http://www.randomhouse.com/features/wisdomofcrowds/Q&A.html
James Surowiecki is a staff writer at The New Yorker, where he writes the popular business column, "The Financial Page." His work has appeared in a wide range of publications, including the New York Times, the Wall Street Journal, Artforum, Wired, and Slate. He lives in Brooklyn, New York.