James Surowiecki is a journalist and staff writer at the New Yorker who is considered one of the foremost experts on crowd behaviour and thinking.

In “Wisdom of Crowds”, Surowiecki theorizes that groups are often smarter than even the smartest individual in them.  While this goes against conventional thinking, the author provides example after example where groups have made better decisions than “experts”.

So how do you use the wisdom of crowds in your business?  What we need are systems that encourage and fund speculative ideas even if they only have a slim chance of survival.  However, for this to work, the ideas and people involved need to be diverse.  Most businesses today are decentralized and the biggest advantage of this model is that it diffuses decision-making powers throughout the system.  That, however, becomes meaningless if all the people with power are alike or become alike through imitation.  The more alike they are, the more similar their ideas will tend to be.

At the group level, intelligence alone cannot guarantee you different perspectives on a problem. Grouping only “smart people” together doesn’t work that well because they bring similar abilities to the table.  When decision makers are too alike - in worldview and mindset - they easily fall prey to group think.  They become insulated from outside opinions and more convinced that the group’s judgement on important issues must be right.  They rationalise away possible counterarguments to the group’s position and reject any form of dissent.  Even if there is no consensus in the beginning, the group’s sense of cohesiveness soon dissolves all doubts.

The author goes on to describe concepts such as social proof (if a lot of people are doing something, there must be a good reason why), when groups will fail (groups are not good at inventing) and the wisdom of crowds in solving cooperation and coordination problems.

Other books the club has discussed: