Today my 401k portfolio is worth about 50% less than it was a year ago. I don’t want to even estimate the value of my house but it is probably worth at least 20% less today than a year ago. A year ago the “wisdom of the crowd” way overvalued my net worth, today it way undervalues it – or at least I hope so, the crowd may still be fine tuning its “wisdom”.
Now, the law of averages and regression to the mean say that the crowd will end up pretty wise in the long run – but imagine making a decision based on the “wisdom of the crowd” at any individual point in time. In fact, what always happens is that when the crowd decides some course of action is wise (like taking out home loans you can’t afford or betting that the hot dice roller at the craps table will make that eight the hard way) it almost invariably turns out that the crowd was dead wrong – this is why contrarians have made good livings betting against the crowd.
Gartner’s hype cycle construct illustrates this effect very well. The hype cycle shows how wrong the wisdom of the crowd is most of the time.
Gartner's Hype Cycle
Security is not immune to the “wisdom of the crowd” herd mentality, though the best security programs I’ve seen tend to be run by teams of people who have a strong cynical and contrarian streak. Ellen Messmer of Network World recently wrote a nice piece where she asked a number of security people about some popular security myths – take a look.
I leave you with yet another sports analogy (and yet another apology to those of you outside the US who believe football is actually a game where you actually kick a ball with your foot): who is more wise: the football coach who kicks the field goal to tie the game, or the shouting crowd yelling for him to go for the touchdown to win? By wise I mean: who would you pay to make the right decision?
4 responses so far ↓
1 Andrew // Nov 21, 2008 at 6:36 am
The hype cycle is explored even further, with lots of examples, in the new book by Gartner analysts Jackie Fenn & Mark Raskino called “Mastering the Hype Cycle”. Here’s a link for more information http://www.gartner.com/hypecycle
2 Greg Young // Nov 21, 2008 at 10:25 am
David Freedman piublished one of the best known counter arguments to the Crowd/Wisdom piece – The Idiocy of Crowds
http://www.freedman.com/idiocy.html
3 Anthony Bradley // Nov 21, 2008 at 11:44 am
What is a crowd? Surowiecki in “The Wisdom of Crowds” and Howe in “Crowdsourcing” both make it clear that diversity and independence are critical to the wisdom of the crowd. “Wisdom of the Crowds” does not mean that ALL crowds are wise. When members of a crowd begin influencing each other en mass then the wisdom of crowds turns to mob mentality.
This is critcal to successful social applications and gaining business value from communities. Not all crowds are created equal and understanding the crowd and how it might evolve is a major success factor.
What crowd are you talking about; homeowners, home buyers, stock buyers, stock brokers, lenders? A crowd, for the purposes of wisdom, must be bounded and defined.
This really isn’t a “Wisdom of the Crowds” scenario. There is no crowd. Macroeconomic theory is much more appropriate here.
4 John Pescatore // Nov 21, 2008 at 5:50 pm
If you start handpicking the “crowd,” then it isn’t a crowd anymore. Diversity and independence, sure -that’s a crowd. That’s the crowd that leaps to overinflated expectations, and falls into the trough of disillusionment – the same crowd that drives market bubbles, the same crowd that falls for hoaxes, the same crowd that believes Daylight Savings Time reduces energy use despite constant studies showing the opposite.
A social community is just a gathering of people with something in common – bounded that way, there are similar demonstrations of lack of wisdom. Soccer match attendees come to mind…
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