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

“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.

“Just because collective intelligence is real doesn’t mean it will be put to good use.”

Surowiecki expresses surprise at the fact that, despite the accuracy of collective intelligence, corporations have not attempted to profit off their ability to predict an outcome or make the correct decision. In other words, despite being proven to work, collective intelligence runs into barriers that prevent people from taking it seriously, a point that Surowiecki explores in depth in later chapters.

“If one virtue of a decentralized economy is that it diffuses decision-making power (at least on a small scale) throughout the system, that virtue becomes meaningless if all the people with power are alike.”

Decentralization is essential to crowd wisdom, but people often mistake its meaning in context. Many hierarchical businesses think that decentralization means allowing people to debate and come to a common understanding. This is not the case; decentralization means spreading decision-making power so that a diverse group of people with a wide range of knowledge can come together to maximize chances of finding a solution.

“Homogenous groups are great at doing what they do well, but they become progressively less able to investigate alternatives.”

Diversity is a core part of group wisdom because it provides the collective with a multitude of options. It also prevents people in the group from reinforcing each other’s opinions without attempting to explore alternatives.

“For all this, though, independence is hard to come by. We are autonomous beings, but we are also social beings. We want to learn from each other, and learning is a social process.”

Cognitive independence is required for crowds to make wise decisions because it prevents people from relying on others for information, thereby reducing the variety of possible solutions to a problem. However, relying on private judgment is often counterintuitive since humans have evolved to be social creatures.

“In a sense, imitation is a kind of rational response to our own cognitive limits. Each person can’t know everything. With imitation, people can specialize and the benefits of their investment in uncovering information can be spread widely when others mimic them.”

Although Surowiecki concedes that imitation is an integral part of the human learning process and has many advantages, such as the ability to specialize in a field, he cautions that too much reliance on imitation of others reduces cognitive diversity, which hurts the crowd’s judgment. This observation complicates the limits of individual expertise. Imitation allows knowledge to spread efficiently, but it also reveals why expertise alone is insufficient. Without independent checks, specialization risks becoming a form of herd reliance.

“Decentralization’s great strength is that it encourages independence and specialization on the one hand while still allowing people to coordinate their activities and solve difficult problems on the other.”

Decentralization is one of the three factors that maintain crowd intelligence. Here, Surowiecki highlights the two main ways in which decentralization contributes to crowd intelligence.

“A decentralized system can only produce genuinely intelligent results if there’s a means of aggregating the information of everyone in the system.”

Collective intelligence fundamentally requires aggregating information from a crowd made of diverse individuals. Thus, decentralization should not only encourage every individual to reason independently but also provide a method through which their conclusions can be collected.

“What defines a coordination problem is that to solve it, a person has to think not only about what he believes the right answer is but also about what other people think the right answer is.”

Coordination problems are one of the three types of problems that crowd intelligence can resolve. However, it has an added difficulty compared to cognitive problems: Solving coordination problems requires the individual to match their answer to the rest of the group while maintaining independent reasoning.

“Culture also enables coordination in a different way, by establishing norms and conventions that regulate behavior.”

Following the explanation of the previous passage, this quote explains how individuals can maintain independent reasoning while still matching with the group. Culture and conventions are accepted by the group as true; therefore, even when people do not know what others think, they often can still guess correctly.

“If your prosperity in the long run depended on return business, on word-of-mouth recommendations, and on ongoing relationships with suppliers and partners, fair dealing became more valuable.”

Surowiecki argues in Chapter 6 that modern capitalism is predicated on mutual trust. Without this, people would become unable to make purchases or investments without incurring extremely high risk. Trust is therefore fundamental to guiding crowd decision-making, especially in a system where everyone is expected to act according to their self-interest. This claim links trust directly to the book’s larger theme of The Fine Line Between Crowd Wisdom and Herd Mentality. Where trust is absent, individuals assume that others will defect, fueling downward spirals of noncooperation.

“All you really trust is that the other person will recognize his self-interest. But over time, that reliance on his own attention to his self-interest becomes something more. It becomes a general sense of reliability, a willingness to cooperate (even in competition) because cooperation is the best way to get things done.”

This passage offers a conclusion to the points mentioned above: Cooperation problems can be solved by trust. When there is a baseline of mutual trust and when people operate under the assumption that those who do not obey these unspoken rules will be punished, the crowd is most likely to make wise decisions.

“Today, every car in Singapore has an electronic smart card attached to the dashboard, and as soon as you cross into a pay zone, you see the money disappear from your card. This has two advantages: it makes cheating impossible, and it makes the cost of your decision to drive immediately obvious to you.”

One of the greatest hindrances to crowds solving problems of cooperation is the possibility of freeloading. Singapore’s traffic system is used here as an example of a policy that successfully deters freeloading and re-instills trust.

“One reason coordination on the highway is so difficult is the diversity of the drivers.”

When coordination problems can only be solved by people anticipating others’ actions, increased crowd diversity may actually worsen collective decision-making. This is the case of traffic, which arises most often when drivers fail to coordinate their actions with each other. This line introduces a paradox: Diversity strengthens crowd wisdom in many contexts but may impair coordination in traffic. It highlights Surowiecki’s nuanced defense that context determines whether heterogeneity improves or undermines collective outcomes.

“Although in the popular imagination science remains the province of the lone genius working alone in his lab, in fact it is, in more ways than one, a profoundly collective enterprise.”

The modern scientific process is a perfect example of a community tapping into collective wisdom. Surowiecki argues that the way research is being conducted nowadays encourages independence, diversity, and decentralization, all of which are necessary to crowd intelligence. It is through this system that great discoveries can be made.

“But that knowledge is more than cumulative. It’s collective. Scientists depend not just on the work of their predecessors, but also on the work of their contemporaries, who are in turn dependent on them.”

Here, Surowiecki underlines that great scientific progress is not simply the result of gathering more and more knowledge. Rather, people can make amazing discoveries in such little time because the scientific research process is collective: It taps into crowd wisdom.

“But in a more subtle way small groups can exacerbate our tendency to prefer the illusion of certainty to the reality of doubt.”

One of the major problems when a small group attempts to come to a collective conclusion is that they may become insular, to the point where they rely on each other for protection. This reflex is called herding, and it disproportionately encourages taking refuge in the safety of the crowd rather than risking doing something different, even if the chances of succeeding by branching out are high.

“More important, as solid as the evidence demonstrating group polarization is, so too is the evidence demonstrating that nonpolarized groups consistently make better decisions and come up with better answers than most of their members, and surprisingly often the group outperforms even its best member.”

Polarization is a curious phenomenon whereby people are more likely to become radicalized in their views (rather than moderate) after discussing it with others. Surowiecki does not believe this is the case every time, but he cautions that crowd wisdom is more accurate when there is no polarization. This directly illustrates the fine line between crowd wisdom and herd mentality. Polarization distorts independence and diversity, but depolarized groups embody the core conditions that let crowds outperform their own best members.

“The fundamental paradox of any corporation is that even though it competes in the marketplace, it uses nonmarket instruments—plans, commands, controls—to accomplish its goal.”

Decentralization dictates that decision-making rights should be spread out through the system. However, decentralization without circulating information through all parts of the system can also encourage inadequate answers. Corporations must walk the fine line between these two opposing concepts to maximize their efficiency.

“In fact, the more important the decision, the more important it is that it not be left in the hands of a single person.”

Here, Surowiecki advocates for decentralization in corporate decision-making. Since many companies still follow a hierarchical structure, they are not optimizing their operations to take advantage of group intelligence. Surowiecki argues that these companies run the risk of underperforming or going in the wrong direction due to a CEO choosing wrong.

“The idea of the wisdom of crowds is not that a group will always give you the right answer but that on average it will consistently come up with a better answer than any individual could provide.”

Crowd decisions are not foolproof; Surowiecki is merely arguing that they are, more often than not, more correct than individuals. By understanding this from a statistical point of view, people can more rationally make use of crowd wisdom.

“The problem with the stock market is that there never is a point at which you can say that it’s over, never a point at which you will definitely be proved right or wrong. This is one reason why a company’s stock price can easily soar far past any reasonable valuation, because people can always convince themselves that something in the future will happen to make the company worth it.”

This passage explains why bubbles can easily form in the stock market, whereas the prices of consumer goods rarely rise significantly above their real value. The fundamental difference between the two is that the value of a stock is partly dependent on what the group decides it is. This illustrates the theme of the consumer and stock markets as aggregators of knowledge and prediction systems by showing the fragility of financial signals. When independence and diversity collapse, markets stop reflecting fundamentals and drift into herd-driven speculation.

“The problem, though, is that we have no standard that allows us to judge a political decision to be ‘right’ or ‘wrong.’”

Similar to the above quote, the desirability of a public policy is also difficult to judge objectively. Just as with stocks, the value of political decisions is partly affected by the group’s opinion.