The principle and application of The Wisdom of Crowds|ManualTrader

The principle and application of The Wisdom of Crowds

1903 ManualTrader

If you're looking for a good book to read, you should try James Surowiecki's The Wisdom of Crowds. The book is a must-read for anyone interested in human behavior. If you're not sure how to read it, here's a quick synopsis: "The wisdom of crowds is the best predictor of human behaviour." While it's a simple concept, it can be difficult to grasp and put into practice.

In the first book in the Age of Madness trilogy, Isern-i-Phail is a hillwoman who gives advice to the humans on various topics. She is the daughter of the Dogman and is the daughter of a powerful hillman. In the second novel, Rikke of the Long Eye traded her portent powers to a mysterious ally. The Wisdom of Crowds is a compelling and powerful read and will keep readers guessing.

While the Wisdom of Crowds can be useful in many contexts, it isn't always beneficial. Although it has many positive characteristics, it is important to note that there are still several risks involved. While the Wisdom of Crowds can lead to great benefits, it should also be understood as a risky strategy. It's important to remember that crowds are unpredictable, and individuals make mistakes. Nonetheless, Surowiecki's book is a compelling read for anyone interested in behavioural economics.

Google can often accurately find the information we need most, and this is where Google search is most powerful: the most relevant and detailed web pages can always appear on the first page of search results.

Larry Page, the founder of Google, invented the PageRank algorithm in 1996, which can score every webpage. The more webpages connected to the webpage, the higher his ranking will be. In other words, the more people find a web page useful, link or cite it, the higher the page ranking will be. Therefore, every Google search is a demonstration of the wisdom of the crowds on a certain topic. And Google's algorithm shows this wisdom.

1. The weight of the cow

In 1906, a poultry fair was held in Plymouth, Devon, England. The conference invites visitors to guess the weight of a bull after slaughter based on their own skills and judgment. In order to increase the difficulty, the activity is not to guess the weight of the bull while it is alive, but the weight after the bull is opened, that is, the weight after deducting the head, feet, internal organs, and fur. Nearly 800 people paid a 6 pence entry fee (calculated by inflation, the current value is about 7 pounds, and Taiwan dollars is about 280 yuan). After the answer was announced, one person completely guessed the correct weight, 1198 pounds (about 545 kilograms).

The wisdom of the crowd makes the guess result close to the correct answer.

The famous British statistician Francis Galton accidentally participated in this event. After the event, he asked the organizer for information on the number of 800 people guessed. After his analysis, he found an amazing result. Although the results of the guesses are widely distributed, the median of all guesses falls at 1,207 pounds (547 kg), which is only 0.8% away from the true weight.

Why can so many "individual guessers" produce results that are so close to the real numbers? Galton puts forward several factors:

a. Participants have to pay, so many people who waste time and don't expect to guess correctly are eliminated, and the so-called "stupid bias" is reduced. And the event offers bonuses, so everyone will try to guess the correct number.

b. Participants are from cattle raisers, butchers, and even agricultural professionals, so the accuracy of guessing is improved.

Galton was surprised to point out that the median guess of the group was so close to the true number that it not only defeated most individual guessers, but also more accurate than those called experts. And this analysis also allowed Galton to discover the essence of the wisdom of the crowds: the average comprehensive judgment of the crowds will gradually converge in the correct answer.

2. Proof of the wisdom of the crowds

Imagine the following scenario: an organization wants to hire people to solve difficult problems. In order to get more information from applicants about their individual problem-solving abilities, the organization decides to conduct an ability test on 1,000 applicants. Their scores fall between 60-90 points, all of which have reached the passing standard, which also proves that they are all capable of solving problems. So what kind of employment should the organization employ to recruit them?

(i) The person with the highest admission score.

(ii) Exclude the highest scorer and admit the top 20 highest scorers.

(iii) Twenty people are randomly selected.

Regardless of (ii) possible communication problems between them, we all know that (ii) is definitely better than (i), and many documents have confirmed this. But what about (ii) and (iii)? We intuitively think that (ii) is the best, but Scott Page and Lu Hong have used mathematical derivation to prove that the option (iii) is the best. To put it in the vernacular: Two heads are better than one.

According to their paper, when the number of people who solve problems increases, the ability of individuals to solve the problem in a group will be offset by the diversity of the group composed of randomly selected people. The so-called diversity refers to how they think about problems and what way of thinking they use to solve problems. The way of thinking (perspective) will be affected by race, place of residence, gender, age, experience, professional experience and preferences... etc. The increase in the number of people also makes the "relatively more capable people" more and more similar to each other, causing a large part of the individual characteristics of the group to overlap, resulting in insufficient diversity of the group.

In a word, the diversity of the group is more important than the ability of the individual in the group.

3. Is the wisdom of the crowds reliable?

Since the wisdom of the crowds is really so effective, why do we still often see the mistakes made by the crowds?

The Swiss Federal Institute of Technology (ETH) in Zurich conducted an experiment. They asked the participants several questions, such as: What is the length of the border between Switzerland and Italy? How many murders occur in Switzerland each year? When given the guessed number of a participant and other participants, the guessed number of the participant will be locked in a certain range. In terms of the average result, their guessed number is still far from the correct answer. In other words, individuals in the group will be affected by an arbitrary number given, and if this arbitrary number is closer to the correct answer, they will also give a more correct answer, otherwise, they will be ridiculously wrong.

Individuals will be affected by any number given by the group.

We can know from the above that in order to exert the wisdom of the crowds, the judgments made by individuals in the group must not be interfered by other people. If there is a leader in the group who will lead everyone in particular, other people are likely to be affected. As a result of fewer individual options, the wisdom of the group will be completely disintegrated. And this is what many people hope in recent years that Taiwan’s legal trials will be able to seek the possible impact of the British and American jury system. Taiwanese generally live in the three sequences of "sentiment, reason and law." In addition, most Taiwanese do not have legal awareness and are easily led by the wind. Once in the jury, there is a leader who will lead others in particular, it is likely to let the whole The judgment is directed to the expectations of a single individual or some people, and the judgment is not directed to legal fairness and justice, but to the justice of the villagers.

4. How can we effectively use the wisdom of the crowds?

1. Independence and negative correlation of decision-making:

We often use IQ, aptitude tests, academic tests, and joint test scores to judge personal abilities, but such tests cannot judge how different a person thinks when facing a problem from other people. In other words, if we want to maximize the abilities of the group of three heads, we must make these three people individually, independently, and the way they think are negatively correlated, in order to maximize the wisdom of the group.

2. Diversity:

The effectiveness of predicting the market depends on the characteristics of the participants. The ability of the participants is of course very important, but the diversity of the group is more important. We are not to recruit more experts to the team, but to introduce more "lone rangers" with unique ideas and different opinions. Because the opinions of experts tend to be consistent, and the ideas of lone rangers are often centered on me, not related to other people, but can increase the diversity of the group.

3. The correctness of the information source:

Information is easy to obtain, and the opinions of decision-makers will be highly relevant. If the information source is correct, the situation is fine. If there is a problem with the source of information, the reliability of the judgment made by a group of people may fall apart.

Concluding remarks

If the environment we face is very competitive and requires constant innovation and production of new products (such as Apple, Google), the use of "group diversity" can help these companies continue to progress. However, even with group diversity, if many policy makers and voters do not have objective correct answers, they will still make mistakes in their decisions. Looking back at history, this is how the formation of the financial crisis and the selection of the wrong leaders in democracies came about.

The diversity of groups can help many competing companies to progress

And why am I in, why most of the supervisors dare not take risks? A discussion of behavioral economics mentioned that head coach Belichick can still make correct judgments in the face of the clamor of many fans. However, most coaches are misled by the crowds and make decisions based on the expectations of the fans, leading to wrong decisions.

Even though the discovery of the wisdom of the crowd has been more than a hundred years old, there are still many issues with the wisdom of the crowd that need to be studied, such as the optimal group size, how individual personalities affect group decision-making and the role they play... etc. These issues are worthy of our time to ponder and explore.

Finally, although we have a lot of literature pointing out the benefits of the wisdom of the crowds, the diversity of groups will lead to difficult communication, more conflicts, and difficulty in mutual trust and respect. Therefore, the jury system and other mass wisdom have to face There are so many questions!

If you want to know more about economics and financial management, you can go to inshat.

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