Problems
Wisdom-of-the-crowds research routinely attributes the superiority of crowd averages over individual judgments to the elimination of individual noise, an explanation that assumes independence of the individual judgments from each other. Thus the crowd tends to make its best decisions if it is made up of diverse opinions and ideologies.
Scott E Page introduced the diversity prediction theorem: "The squared error of the collective prediction equals the average squared error minus the predictive diversity". Therefore, when the diversity in a group is large, the error of the crowd is small.
Miller and Stevyers reduced the independence of individual responses in a wisdom-of-the-crowds experiment by allowing limited communication between participants. Participants were asked to answer ordering questions for general knowledge questions such as the order of U.S. presidents. For half of the questions, each participant started with the ordering submitted by another participant (and alerted to this fact), and for the other half, they started with a random ordering, and in both cases were asked to rearrange them (if necessary) to the correct order. Answers where participants started with another participant's ranking were on average more accurate than those from the random starting condition. Miller and Steyvers conclude that different item-level knowledge among participants is responsible for this phenomenon, and that participants integrated and augmented previous participants' knowledge with their own knowledge.
Crowds tend to work best when there is a correct answer to the question being posed, such as a question about geography or mathematics.
The wisdom of the crowd effect is easily undermined. Social influence can cause the average of the crowd answers to be wildly inaccurate, while the geometric mean and the median are far more robust.
Read more about this topic: Wisdom Of The Crowd
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