The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations

“Under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them. Groups do not need to be dominated by exceptionally intelligent people in order to be smart. Even if most of the people within a group are not especially well-informed or rational, it can still reach a collectively wise decision.”

The idea that crowds can make better decisions, on average, than even the most informed expert is the core argument proposed by this book. Even more interesting is the proposal that individual crowd members need not be particularly smart or rational for the aggregate group answer to remain wise. These theoretical ideas are thoroughly defended in Part 1 of the book. This statement anticipates The Limits of Individual Expertise by insisting that group intelligence is not dependent on the brilliance of outliers but on the statistical effect of aggregation.

“If you ask a large enough group of diverse, independent people to make a prediction or estimate a probability, and then average those estimates, the errors each of them makes in coming up with an answer will cancel themselves out.”

Surowiecki uses statistics to defend the idea that individuals in a crowd need not be informed or rational for the group decision to be wise. As he will explain later, crowd intelligence is only achieved through the aggregation of every individual’s decision, meaning that extremes will cancel themselves out. The passage illustrates The Consumer and Stock Markets as Aggregators of Knowledge and Prediction Systems: The very process of averaging errors into a single signal is what makes consumer prices and stock values informative beyond any individual’s guess.