The Wisdom Of Crowds – Part I Authored by: James Surowiecki Presented by: Weifeng Li Date:

The Wisdom of Crowds The judgment of crowds is good in both laboratory settings and the real world; With decision making, the average is often excellence; Achieving the wisdom of the crowd is not so much perfecting a particular method, but satisfying the conditions – diversity, independence, and decentralization – that a group needs to be smart.

The Difference Difference Make If one virtue of a decentralized economy is that it diffuses decision-making power throughout the system, that virtue becomes meaningless if all the people with power are alike. Page’s experiment shows: Adding in a few people who know less, but have different skills, actually improves the group’s performance True intelligence resides only in individuals, so that finding the right person will make all the difference.

Monkey See, Monkey Do Social proof: the tendency to assume that if lots of people are doing something or believe something, there must be a good reason why. The limits of group thinking o Reason: aversion of risk/herding o Then we have opportunities in finding research ideas Information cascade

Monkey See, Monkey Do (cont.) What does inventions mean to the book? o Collective choice The more important the decision, the more likely it is that the group’s collective verdict will be right. If you want to improve an organization’s or an economy’s decision making, one of the best things you can do is make sure that decisions are made simultaneously rather than one after another.

Putting the Paces Together Decentralization structure of intelligence agencies in the US has led the US astray. Decentralization fosters and in turn is fed by specialization. A decentralized system can only produce genuinely intelligent results if there’s a means of aggregating the information of everyone in the system. What was missing in the intelligence community, though, was any real means of aggregating not just information but also judgments Centralization v.s. Aggregation

Shall We Dance? Coordination problems When what people want to do depends on what everyone else wants to do, every decision affects every other decision, and there is no outside reference point that can stop the self-reflexive spiral. Schelling points Convention has a profound effect on economic life and on the way companies do business.

Society Does Exist Cooperation problem People want there to be a reasonable relationship between accomplishment and reward. Over time, we have learned that trade and exchange are games in which everyone can end up gaining, rather than zero-sum games in which there’s always a winner and a lose. o Trust as the foundation of capitalism o Corruption in the money stock market The perils of allowing a single self-interested faction to dictate a group’s decision Three kinds of trust in Tax issues

Implications in Academia In terms of the composition of research team, we need to take diversity, independence, and decentralization into account; We need to prevent ourselves from being victim to information cascade by reasoning by ourselves; When doing group research, we need to follow independent thinking and information sharing;

Implications in Academia (cont.) Only by our trusting each other can we achieve the collective benefit of the team as a whole; When doing research on social subjects, we need to take the element of convention into account

The Wisdom of Crowds Part 2 Yun Wang

The wisdom of crowds in different field Traffic Science Small group Company Market Democracy

Coordinate Crowds in Traffic Congestion Pricing Pay for the right to drive on main roads during rush hour Why it works? Crowds are better informed than before. Given quantifiable information, people can choose between time and money. As a result, traffic becomes better.

Hard to Avoid Traffic Jam Drivers diversity Different driving manner like changing lanes, sudden acceleration and braking makes it hard to coordinate drivers Drivers are decentralized individuals Only know the situations of near vehicles. Drivers are making locally optimal choices Rely on intelligent environment instead of intelligent crowds themselves Design intelligent traffic lights to bring more homogeneity on the roads.

Collaboration in Science Why Scientists Collaborate? Today’s Science become more specialized, it is impossible for one person to know everything Collaboration makes it easy to conduct interdisciplinary problem Guarantee a diversity of perspectives Read papers in other field Like KDD and SIGIR, these computer science conference provides us ideas in processing big data and text mining

Competition in Science Scientists are self-seeking They compete for recognition and attention Intensive competition and collaboration, paradox? 1) Inspecting flaws of others research is another kind of collaboration 2) Scientists have demand to access more information like the data on which their peers to build a hypothesis

Reputation in Science Matthew Effect Famous scientists’ works are cited vastly than less well known scientists. The power of name recognition is starling in science Work hard in the laboratory and have our advisors name on the paper

Poor Performance of Small Group Lesson from the Columbia disaster A small group might make members dumber instead of wiser (Mission Management Team failed in reporting the foam damage) Mistakes this small group made 1) Rely on assumptions not an open mind 2) Members were tend to agree on each other 3) Confirmation Bias

Poor Performance of Small Group Reasons for poor performance 1) Fixed members and roles. Lacks diversity 2) Members know each other, status tends to shape speaking patterns. Some people talk more and more. Others hesitate to present their opinion. Make small groups work 1) Bring diversity to small group 2) Adopt voting policy 3) Reduce the priority of a small group in a decision make system

Wisdom of Crowds in Company Zara’s success in utilizing wisdom of crowds 1) Coordinate its products to customers’ demand monthly; 2) Coordinate its employees with a same goal; 3) Refuse outsourcing to ensure its speed and control although it may bring the costs.

Business Organization Top-down Structure Well-organized, better for long term run Hard to say on top of everything Small Group Monitor each other easily Little room for error Temporary Relation Very flexible Cannot ensure the efficiency of members

Suitable Bonus System Normal: Set performance target People are paid by what they “should” do This might make them cheat Good: Give employee interests Make people feel like they are working for themselves Better: Let employee be able to join in the decision making of the company Make people feel they are responsible for the company.

Suitable Bonus System Knowledge to deal with a problem is in the heads of workers. Two soap factories have same problem that is having empty soup box in their assembly-line. A: Hired experts, designed fancy system to ensure a rate of empty box under threshold B: One of the workers put a fan next to the assembly-line, which blow off all the empty boxes.

Game in the Market Importance of short sellers Short sellers are normally blamed by others They actually bring diversity to the market, because the price of stocks are not always going up as everyone expect. Why diversity important In the market, people are actually playing games with each other.

Game in the Market Physical Products Buyers judge the value of physical product on their own Stocks When buyers evaluate the value of a stock, they will consider others’ assessment on this stock. Why we have babble and crash People would like to buy stock totally over its value because they are convinced the greater fool was out there

Democracy The decision that democracy make may not demonstrate wisdom of crowds Most of Americans do not know the government policies well They are not well informed about these policies or even not interested in details of these policies So there is not much politics wisdom of crowds.

Questions