Wisdom of the Crowd
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WISDOM OF THE CROWD
Abstract
“Wisdom of the crowd” is not a new definition, yet still a highly relevant phenomenon whose application can be found in many professional aspects. This paper will first elaborate the definition of this term, then discuss its most popular applications and in the end, some practical examples relating to Electronic Business will be provided.
Definition
The concept “Wisdom of the crowd” has its origin back in 1906 as it was discovered by the British statistician Francis Galton. The scientist was at a poultry exhibition where about 800 people was trying to guess the weight of a dead ox in a competition. After the prize was awarded, Galton collected all the guesses and averaged them together. The result was astounding: the dead ox weighed 1,198 pounds, and the crowd’s average guess was 1,197. In 1907, Galton published his discovery in the scientific journal Nature, stating his surprise at the accuracy of the crowd’s guess, which clearly surpassed anything an individual expert could get close to (Escoffier and McKelvey, 2015). In 2005, James Surowiecki published his book “The wisdom of crowds”, calling attention to this topic once again. Apart from the experiment of Francis Gaton, Surowiecki also provides another persuasive real-life demonstration: statistics have shown that in the TV show “Who wants to be a Millionaire”, when being stuck at a difficult question, contestants who turned to the audience would get the correct answer 91% of the time, while those who asked their expert friend would only get a correct answer 65% of the time. The term “Wisdom of the crowd” implies “the phenomenon that the aggregate prediction or forecast of a group of individuals can be surprisingly more accurate than most individuals in the group, and sometimes – than any of the individuals comprising it.” (Mavrodiev, Tessone and Schweitzer, 2012, p.1). The point of this phenomenon is, according to Surowiecki (2005), that one could harness the best results out of a crowd made up from non-experts, considering some perfect conditions (diversity, independence, decentralization and aggregation). When these conditions are not fulfilled, for instance if some are aware of others’ opinions, meaning that they are not independent anymore, the decision of the crowd might head to a completely inaccurate direction.
Application
Since James Surowiecki released his book in 2005, scholars have carried out many researches on this phenomenon and its effect in various disciplines, ranging from finance, marketing, management, science to psychology and medicine. In academic research, wisdom of the crowd comes in form of peer reviews. In finance, it could be observed in the stock market, where stock prices represent aggregated forecast of traders. A similar market – the prediction market – also finds its practice using this phenomenon: opinions from a diverse crowd will be polled to forecast an eventual outcome (Guessing Game: A new type of prediction market, 2016). Another popular application that needs to be mentioned is the Delphi technique, where experts in various fields are requested by a company to predict the future of an emerging innovation or a volatile market (Duboff, 2007, 09). By tapping into the wisdom of an expert crowd, companies try to meet the optimal decisions about investments in new technologies or in undefined markets (Duboff, 2007, 09). In business and management, this phenomenon is usually mentioned together with “Crowdsourcing”, meaning the act of outsourcing a job, which is traditionally performed internally, to a large, undefined group of people (the crowd) in the form of an open call (Howe, 2006). Howe suggests that crowdsourcing allows firms to access a large community with diverse skills and expertise, thus resulting in a much lower cost than if the tasks are performed in-house. Furthermore, start-ups could also benefit from wisdom