The Wisdom of Crowds

One of the key lessons of the Wisdom of Crowds is that we don't always know where good information is. That's why, in general, it's smarter to cast as wide a net as possible, rather than wasting time figuring out who should be in the group and who should not. This idea is well suited to the internet.

Modern capitalism made the idea of trusting people with whom you had no personal ties seem reasonable, if only by demonstrating that strangers would not, as a matter of course, betray you. Buying and selling no longer required a personal connection. It's driven instead by the benefits of mutual exchange.

In the 50 years since Vernon Smith did his first experiment in [wisdom of crowds] and published the results, they have been replicated thousands of times in ever more complex variations. But the essential conclusion of those early tests has not been challenged : that, under the right conditions, imperfect humans can produce near-perfect results.

A decentralized system can only produce genuinely intelligent results if there's a means of aggregating the information of everyone in the system.

Decentralization's great weakness is that there's no guarantee that valuable information which is uncovered in one part of the system will find its way through the rest of the system. Sometimes valuable information never gets disseminated.

Groups that are too much alike find it harder to keep learning, because each member is bringing less and less to the table. They spend too much time exploiting, and not enough time exploring.

The 4 conditions that characterize wise crowds: