Crowds: mad or wise? You decide.

I see that the first person has been evicted, following a public vote, from the Big Brother house this week. Two others have left. One because he had a breakdown, the other was thrown out for ‘cheating.’ This pathetic circus is a kind of collective vacuity. But is there such a thing as collective intelligence?

When I was at college, I read a terrific book called Extraordinary Popular Delusions and the Madness of Crowds. There’s a telling story of an 18th century stock swindle where subscribers were persuaded to invest in “A company for carrying on an undertaking of great advantage, but nobody to know what it is.” I don’t suppose much has changed since then – look at the dotcom boom. Or Big Brother.

Well, one thing has changed. Today some people think crowds are wise. James Surowiecki is one. He wrote The Wisdom of Crowds which was published in 2004. His contention is that, contra Charles MacKay, crowds know something that individuals don’t.

Actually, I think they both have something important to say. My hunch is that crowds are wise when you are looking for regression to the mean and that they are foolish you use them to find the extreme outliers. In market terms, they are good guides if you want to be safe but not if you want to be greedy.

This is also why commercial flights have two pilots: not so you get the best skill of two pilots but so you avoid the worst mistakes. Apparantly they are now working on planes that can land themselves if a pilot is incapacitated, but that’s another story.

This crowd thing is a bit of a media meme. At least at Stibbe towers. There’s a first-class article in The Atlantic Monthly about management consultants. The following quote reveals the author’s prejudice:

…the impression I formed of the M.B.A. experience was that it involved taking two years out of your life and going deeply into debt, all for the sake of learning how to keep a straight face while using phrases like “out-of-the-box thinking,” “win-win situation,” and “core competencies.”

Then there’s a new buzzphrase: ‘crowdsourcing’. There’s a good article on Wired about this phenomenon. It means, broadly speaking, using the power of the internet to harness the skills of low-paid, highly-skilled amateurs. The photo library, iStockPhoto, is one example of this. Disclosure: I use them for most of the pictures on this site.

There’s even a site where you can set up your own online markets to harness the power of collective intelligence. Check out inkling.

But there are dissenting voices. I particularly enjoyed an article subtitled The Wisdom of Chimps on The Register this week. Here’s a snippet:

The self-selecting nature of participation in computer networks simply amplifies groupthink. Facts that don’t fit the belief are discarded.

I also liked the reference to Chris Anderson’s “faith-based economic theory.” But you’d expect the editor of Wired to tout the web. It’s part of his job description. Another disclosure: I am a regular contributor to Wired. Don’t fire me Chris.

The article closes with the assertion:

The media, and Time is a great example, espouses the rosy view that our public networks are in rude health. I’m confident that this utopian view carries little weight with a public frustrated with pop-ups, viruses and spam.

Crowds: wise or not? You decide.

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