Two roads diverged in a yellow wood, wrote Robert Frost, and taking the one less travelled by made all the difference.
When is it wise to follow the crowd and when is it not a good idea?
Crowds are good at particular kinds of thinking. In his book The Wisdom of Crowds, New Yorker staff writer James Surowiecki talks about three kinds of problems that crowds are particularly good at solving:
- Problems of cognition: These are problems which will have a solution at some point. How many cars will sell next quarter? How likely is it that a new drug will get approved?
- Problems of coordination: How should a group of people behave? for example, how do buyers and sellers trade fairly? How should people drive safely in cities?
- Problems of cooperation: How is it possible to get people who are focused on their own interests to work together? How can we tackle problems like pollution, climate change or tax policy?
Crowds can also be extremely unwise. This usually happens when the rules they should follow break down, communication fails to moderate behaviour and you get things like a riot or stock market bubble.
Interestingly, a crowd seems to fail when its members start to think the same way. This is the essential cause of stock market bubbles and has been seen over time, from tulips to houses.
When everyone starts to believe that the price of something will always go up, you get irrational exuberance, and a bubble that eventually bursts.
The paradox is that wise crowds integrate individual judgements to produce a group judgement – but in order to reach a good judgement, each member of the group needs to think and act independently.
Organisations that want people to reach better decisions should encourage diverse and independent thought and action.
Individuals who want to make better choices should not be afraid to disagree and contest ideas and options. We think better when we think independently.
