(Published in the Manila Standard Today under the Greenlight Column, March 13, 2006)
Manny Pacquiao was pegged a 10-8 underdog in the Las Vegas sports book betting windows a week before his rematch fight against Erik Morales; and this after Pacquiao was pegged the 7-5 choice earlier. As the fight neared, the odds became even until more bettors placed their wager on Pacquiao on the day of the fight itself, making him a 10-9 favorite. True enough, more bettors got their winnings as Pacquiao kayoed Morales.
Wise Crowds
The collective wisdom of the bettors, despite the vacillating odds, turned out to predict the winner in the historic boxing fight. This crowd of diverse bettors, as James Surowiecki put it in his book “Wisdom of Crowds”, is “remarkably intelligent”, and is “often smarter than the smartest people in them” under the right circumstances.
Surowiecki argues that “four conditions characterize wise crowds: diversity of opinion (each person should have some private information, even if it’s just an eccentric interpretation of known facts), independence (people’s opinions are not determined by the opinions of those around them), decentralization (people are able to specialize and draw on local knowledge), and aggregation (some mechanism exists for organizing and turning private judgments into a collective decision”
Examples of crowd or group intelligence abound in society and organizations alike. For instance, the Hollywood Stock Exchange (HSX), a play-money market where diverse and independent traders bet on the box office success of movies and on the outcomes of major entertainment awards predicted seven out of eight of the major awards in the recent 78th Oscars. In fact, experts agree that the HSX, as an aggregator of collective decision, performs better than 4 out of 5 columnists in predicting the Oscars.
Also, some corporations have tried tapping the wisdom of their employees by setting up ‘decision markets’. Surowiecki cited a division of Eli Lilly called e.Lilly, “has been experimenting with using internal stock markets [as decision aggregators] and hypothetical drug candidates to predict whether new drugs will gain FDA approval.” This is an important for drug companies to know, “because their whole business depends on them not only picking winners—that is, good, safe drugs—but also killing losers before they have even invested much money in them.” Employees, drawing on their knowledge and diverse backgrounds, are able to pick product winners.
Foolish Crowds
But where the conditions that characterize crowd wisdom are absent, mass mania and collective follies are bound to come out, as described in the 1841 work of Charles Mackay titled “Extraordinary Popular Delusions and Madness of Crowds”. For Mackay, crowds “think in herds” and “go mad in herds, while they only recover their senses slowly and one by one”. Herding precludes independent thinking and judgment among crowd members.
Likewise, Gustave Le Bon a French writer who in 1895 published the controversial classic “The Crowd: A Study of the Popular Mind”, argued that “when the crowd did act, it invariably acted foolishly as in the case of riots”.
Evidently so, many rallies and demonstrations have ended up in violence and mishaps due to the “unwise” judgment of crowds. Like all other stampedes, the unfortunate ULTRA stampede where 71 people died is a clear example of how crowds can get out of control. Clearly, the crowd that gathered in the grounds of ULTRA lacked diversity, and in fact, homogenous in a way with a singular aim of joining the contests and hopefully get the winnings. This resulted to a “herding effect” in the crowd which, when compounded by the lack of organization erupted to crowd chaos.
Traffic jams are another example of crowd folly, where the vehicle drivers’ thoughts and driving decisions are dependent on the other surrounding vehicles’ movements. In certain areas in Metro Manila during rush hours, majority of the drivers share the same thoughts – to beat all other vehicles and reach one’s destination faster – thus, violating diversity and independence.
Politicized Crowds
If a crowd can be as wise as it is foolish, does our democratic elections pass Surowiecki’s own criteria of diversity, independence, and decentralized specialization? Do we as a people exhibit diversity of opinion, where majority of our voting public is below poverty line and relatively few voters have truly unique knowledge about politics? Do we display independence of thought when voters routinely acquire political biases from those around them rather than attempting to understand and analyze the issues for themselves? Do we demonstrate decentralized specialization during elections, when very few voters have specialized knowledge of any policy issues? Is representative democracy through the secret ballot the only way of aggregating the collective decisions of the people?
Our national leaders and organization managers alike can perhaps draw from the knowledge of crowd dynamics, to understand how they can tap into the collective wisdom of groups and crowds, and to aid them in decision making and policy formulation.
----------------
Reynaldo Lugtu, Jr. teaches Management Principles and Dynamics, Special Topics in Business Management, and Marketing of High-Tech Products and Innovations in the MBA Program of De La Salle Professional Schools. He may be e-mailed at rlugtu2002@yahoo.com.
Wise Crowds
The collective wisdom of the bettors, despite the vacillating odds, turned out to predict the winner in the historic boxing fight. This crowd of diverse bettors, as James Surowiecki put it in his book “Wisdom of Crowds”, is “remarkably intelligent”, and is “often smarter than the smartest people in them” under the right circumstances.
Surowiecki argues that “four conditions characterize wise crowds: diversity of opinion (each person should have some private information, even if it’s just an eccentric interpretation of known facts), independence (people’s opinions are not determined by the opinions of those around them), decentralization (people are able to specialize and draw on local knowledge), and aggregation (some mechanism exists for organizing and turning private judgments into a collective decision”
Examples of crowd or group intelligence abound in society and organizations alike. For instance, the Hollywood Stock Exchange (HSX), a play-money market where diverse and independent traders bet on the box office success of movies and on the outcomes of major entertainment awards predicted seven out of eight of the major awards in the recent 78th Oscars. In fact, experts agree that the HSX, as an aggregator of collective decision, performs better than 4 out of 5 columnists in predicting the Oscars.
Also, some corporations have tried tapping the wisdom of their employees by setting up ‘decision markets’. Surowiecki cited a division of Eli Lilly called e.Lilly, “has been experimenting with using internal stock markets [as decision aggregators] and hypothetical drug candidates to predict whether new drugs will gain FDA approval.” This is an important for drug companies to know, “because their whole business depends on them not only picking winners—that is, good, safe drugs—but also killing losers before they have even invested much money in them.” Employees, drawing on their knowledge and diverse backgrounds, are able to pick product winners.
Foolish Crowds
But where the conditions that characterize crowd wisdom are absent, mass mania and collective follies are bound to come out, as described in the 1841 work of Charles Mackay titled “Extraordinary Popular Delusions and Madness of Crowds”. For Mackay, crowds “think in herds” and “go mad in herds, while they only recover their senses slowly and one by one”. Herding precludes independent thinking and judgment among crowd members.
Likewise, Gustave Le Bon a French writer who in 1895 published the controversial classic “The Crowd: A Study of the Popular Mind”, argued that “when the crowd did act, it invariably acted foolishly as in the case of riots”.
Evidently so, many rallies and demonstrations have ended up in violence and mishaps due to the “unwise” judgment of crowds. Like all other stampedes, the unfortunate ULTRA stampede where 71 people died is a clear example of how crowds can get out of control. Clearly, the crowd that gathered in the grounds of ULTRA lacked diversity, and in fact, homogenous in a way with a singular aim of joining the contests and hopefully get the winnings. This resulted to a “herding effect” in the crowd which, when compounded by the lack of organization erupted to crowd chaos.
Traffic jams are another example of crowd folly, where the vehicle drivers’ thoughts and driving decisions are dependent on the other surrounding vehicles’ movements. In certain areas in Metro Manila during rush hours, majority of the drivers share the same thoughts – to beat all other vehicles and reach one’s destination faster – thus, violating diversity and independence.
Politicized Crowds
If a crowd can be as wise as it is foolish, does our democratic elections pass Surowiecki’s own criteria of diversity, independence, and decentralized specialization? Do we as a people exhibit diversity of opinion, where majority of our voting public is below poverty line and relatively few voters have truly unique knowledge about politics? Do we display independence of thought when voters routinely acquire political biases from those around them rather than attempting to understand and analyze the issues for themselves? Do we demonstrate decentralized specialization during elections, when very few voters have specialized knowledge of any policy issues? Is representative democracy through the secret ballot the only way of aggregating the collective decisions of the people?
Our national leaders and organization managers alike can perhaps draw from the knowledge of crowd dynamics, to understand how they can tap into the collective wisdom of groups and crowds, and to aid them in decision making and policy formulation.
----------------
Reynaldo Lugtu, Jr. teaches Management Principles and Dynamics, Special Topics in Business Management, and Marketing of High-Tech Products and Innovations in the MBA Program of De La Salle Professional Schools. He may be e-mailed at rlugtu2002@yahoo.com.
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