The Wisdom of Crowds by James Surowiecki

The average crowd is far from mad

In 1906, the English scientist Francis Galton visited a livestock fair and stumbled upon an intriguing contest. An ox was on display, and the villagers were invited to guess the animal's weight after it was slaughtered and dressed. Nearly 800 gave it a go and, not surprisingly, not one hit the exact mark: 1,198 pounds. Astonishingly, however, the average of those 800 guesses came close - very close indeed. It was 1,197 pounds.

In 1906, the English scientist Francis Galton visited a livestock fair and stumbled upon an intriguing contest. An ox was on display, and the villagers were invited to guess the animal's weight after it was slaughtered and dressed. Nearly 800 gave it a go and, not surprisingly, not one hit the exact mark: 1,198 pounds. Astonishingly, however, the average of those 800 guesses came close - very close indeed. It was 1,197 pounds.

This anecdote captures the striking thesis of James Surowiecki's The Wisdom of Crowds. "Under the right circumstances," he argues, "groups are remarkably intelligent, and are often smarter than the smartest people in them."

For evidence, he cites how groups have been used to find lost submarines, correct the betting spread on sporting events, even predict the president of the United States. So why aren't we using groups more?

Crowds have a pretty bad reputation. When bad influences rise to the fore, they have ignited mob rule, lynching, financial panic and style trends like the moustache. Furthermore, as Surowiecki notes, corporate structure is enthralled with the idea of expertise. Strategy consultants demand £150 an hour, while executives rake in vast salaries to rescue sinking ships. To accept that the masses might know something would mean radically altering how our society operates.

As counter-intuitive as it sounds, the mathematics behind The Wisdom of Crowds works so long as Surowiecki's three key criteria - independence, diversity and decentralisation - are satisfied.

"If you ask a large enough group to make a prediction or estimate a probability," the errors they make cancel one another out, he says. "Subtract the error, and you're left with the information." The studio audience of Who Wants To Be A Millionaire guessed the right answers 91 per cent of the time; but chosen advisers only 65 per cent.

Surowiecki is a business columnist for The New Yorker, and The Wisdom of Crowds packs more textbook terms than an economics primer. One need not be a CEO or stock trader to appreciate his book, but a certain patience with the lingo does help. Overall, however, Surowiecki is a patient and vivid writer with a knack for telling examples. Take national security: he describes how the US blundered into the Bay of Pigs invasion in 1961 because the decision-making group - the president and his advisers - all shared similar assumptions. The group lacked diversity, and, as a result, demonstrated a colossal example of the failings of group-think.

The Wisdom of Crowds is likely to raise controversy. In one section, Surowiecki encourages the intelligence community to revisit the idea of using futures markets - where people bet on impending disasters - to ensure US homeland security.

Football fans might also blush at the idea of having economic models determine the outcome of play-off games. Still, there is something hopeful about his grand idea: that the madding crowd might actually know a thing or two.

John Freeman