Power of the Crowd

“Every week, Who Wants to Be a Millionaire pitted group intelligence against individual intelligence, and every week, group intelligence won.”
The Crowd! The phrase elicits a range of emotions from extremely pessimistic, “Either the Crowd is never wise, never reasonable and doomed to be extreme,” (Charles Mackay, publisher of Extraordinary Popular Delusions and the Madness of Crowds) to profoundly optimistic:

“This intelligence (~collective), or what I’ll call “the wisdom of crowds,” is at work in the world in many different guises. It’s the reason the Internet search engine Google can scan a billion Web pages and find the exact piece of information you were looking for. It’s the reason it’s so hard to make money betting on NFL games, and it helps explain why, for the past fifteen years, a few hundred amateur traders in the middle of Iowa have done a better job of predicting election results than Gallup polls have.”
– James Surowiecki in
The Wisdom of Crowds

So which is it?!

Chasing the Expert

“Chasing the expert is a mistake, and a costly one at that. We should stop hunting and ask the crowd instead. Chances are, it knows.”
– James Surowiecki in

Is the Crowd causing the death of experts?  Not yet but the Crowd is having a measurable impact in select industries including finance as evidenced by the growing reluctance of investors to select experts over index funds (exchange traded funds – ETF’s) given their outperformance. “Between 1984 and 1999 almost 90% of mutual-fund managers underperformed the Wilshire 5000 Index, a relatively low bar. The numbers for bond-fund managers are similar: in the most recent five-year period, more than 95% of all managed bond funds underperformed the market.”

As illustrated above, it is not always wise to chase the experts and the body of evidence supporting this thesis is growing as the Crowd has increased access to data and tools to share knowledge with each other. With the advent of the Internet (Crowd’s access to data), advancements in social media (sharing amongst the Crowd), ability to tag, quantify, and personalize data (Crowd learning and collaborating), the Crowd can be heard and participate like never before. Being heard is one thing, contributing value is another.

There is little doubt the Crowd comprises some of the most intelligent humans on the planet. But it also includes those who are not. That is where basic statistics plays a major role:

“Then why do we cling so tightly to the idea that the right expert will save us? And why do we ignore the fact that simply averaging a group’s estimates will produce a very good result? Richard Larrick and Jack B. Soll suggest that the answer is that we have bad institutions about averaging. We assume averaging means dumbing down or compromising. When people are faced with the choice of picking one expert or picking pieces from a number of experts, they try to pick the best expert rather than simply average across the group.
– James Surowiecki in

So if we can agree the Crowd provides valuable information/data collectively (oftentimes more accurate than the “experts”), the next step fueling this evolution entails the development and proliferation of tools encouraging the Crowd to contribute. One popular tool enticing the Crowd’s input resulting in “the collective” becoming more intelligent are Ratings & Reviews. Widely used in eCommerce platforms (~eBay) and growing in FinTECH (Peer-to-Peer, Equity Crowdfunding), Ratings & Reviews are pivotal for steering consumers/investors to those with the highest ranking from the Crowd and, as a byproduct, encouraging product/service providers to outperform. Ratings & Reviews implies “data in motion,” continually moving in a positive, negative, or neutral positions based on the Crowd’s sentiments over time.

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