The Wisdom of Crowds
Scottish poet and journalist Charles Mackay published Memoirs of Extraordinary Popular Delusions and the Madness of Crowds in 1841. It has been an immensely influential book in the field of popular psychology and study of stock markets. In the preface of that book, referring to the chapters on financial madness, Mackay writes "Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper." That sounds relevant somehow. The brilliant Michael Lewis has named those chapters one of the six great works of economics, alongside Adam Smith and John Maynard Keynes. Bernard Baruch credited the lessons in the book for his decision to sell his stake in the stock market ahead of the crash of 1929.
New Yorker business columnist James Surowiecki Published The Wisdom of Crowds in 2004, and it made an immediate impact, showing that crowds are not as popularly mad and delusional as their previous biographers had made them out to be. Surowiecki uses many examples to bring his point home... the collective guessing of livestock weight at a county fair, the amazing accuracy of audience answers on Who Wants to be a Millionaire?, The Iowa Electronic Markets prediction of political elections, and so on and so forth. For a more immediate example, I learned the that Michael Lewis and Bernard Barush were fans of Extraordinary Popular Delusions and the Madness of Crowds (facts stated in the previous paragraph) from Wikipedia. Wikipedia is, as we all know, the result of crowds.
"What I think we know now is that in the long run, the crowd's judgment is going to give us the best chance of making the right decision, and in the face of that knowledge, traditional notions of power and leadership should begin to pale."
This is not to mean that Mackay was wrong about crowds when he described the madness of The South-Sea Bubble or the influence of politics and religion on beards, or that Nietzsche was necessarily wrong when he wrote that "Madness is he exception in individuals but the rule in groups," or that Bernard Baruch was completely mistaken when he said that "Anyone taken as an individual is tolerably sensible and reasonable--as a member of a crowd, he at once becomes a blockhead." Surowieki quotes all three men in the introduction to his book, but states that "what is demonstrably true of some of these groups--namely, that they are smart and good at problem solving--is potentially true of most, if not all, of them."
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