Wisdom of crowds and mass delusions

The quality of decision-making in democracies depends on how large groups of people form their opinions and make decisions. In this respect there are two opposing ideas, namely the wisdom of crowds and mass delusions. The wisdom of crowds was first discovered in 1906 by Francis Galton. He was visiting a livestock fair where an ox was on display. Villagers were invited to guess the animal’s weight. Nearly 800 people participated in the contest. No-one guessed the weight of 1,198 pounds exactly. Yet, the average guess was 1,197 pounds, almost perfectly right.

At least in specific cases groups of individuals can on aggregate assess a situation quite good. The average guess included the extremes on both sides. Mr. Galton was impressed. He thought that this was an argument in favour of democracy as different views are reflected in parliament and this can result in good decisions on average.

The wisdom of crowds depends on individuals having different backgrounds and making their decisions independently so that they look at the issue in different ways. The more people are alike or the more they influence each other, the more they become prone to group think so that the wisdom of the crowd disappears. In extreme cases this can lead to mass delusions like stock market bubbles. Diversity of opinions is one of the reasons why decision-making in democracies can be superior to other forms of decision making. Mass delusions can be a reason why it is not.

See also:
– The Wisdom of Crowds. James Surowiecki (2004). Doubleday, Anchor.
– Extraordinary Popular Delusions and the Madness of Crowds. Charles Mackay (1841). Richard Bentley, London.