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

The decision market is a system designed to capture crowd intelligence through betting and the buying and selling of stocks. They operate best when a diverse group of individuals bets on the outcomes of specific events based on their private information. Decision markets such as the IEM have been proven to be extremely accurate even when there are no financial incentives to participate.

Freeloading is the act of benefiting from group-funded programs without contributing to the system. For example, people who evade taxes are considered freeloaders because they benefit from tax-funded systems, such as national pension, without donating their fair share.

Herding describes the behavior of following what the crowd does, assuming that it’s the safest option. In the book, herding is used to explain why experts often choose to minimize risk in their decision-making, even when taking risks would statistically benefit them far more. For example, football coaches almost always insist on making safe plays even when, statistically, the riskier play not only has an immediate higher yield if it succeeds but has a better chance of increasing future success rates even if it fails. The reason for herding is an aversion to risk and a fear of social backlash: It makes professional sense that coaches prefer to lose small by making the safe call than potentially risk failing big by making the riskier call, even if there is a high possibility of winning even bigger.