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| Volume 5, Issue 2 - February, 2006 • The Wisdom of Crowds and Decision-Making Surowiecki writes about aggregate intelligence or the wisdom of crowds and the potential it has to make a profound difference in the way companies do business. He suggests that we are imperfect when it comes to decision-making. “We generally have less information than we’d like. We have limited foresight into the future. Most of us lack the ability – and the desire – to make sophisticated cost-benefit calculations. Instead of insisting on finding the best possible decision, we will often accept one that seems good enough. We often let emotion affect our judgment. Yet despite all these limitations, when our imperfect judgments are aggregated in the right way, our collective intelligence is often excellent.” The four step Taking Aim Decision-making Process takes advantage of this thinking. It frames the process in steps that establish a positive approach, create a picture of a desired outcome, determine steps to achieve that outcome and executing those steps in a coherent fashion. Surowiecki goes into great detail about the underlying reasons why properly structured group decisions are superior to individual or small group decisions. The secret to taking advantage of the wisdom of crowds is for each person in the crowd to think and act independently because the best collective decisions are the result of disagreement and contest not consensus or compromise. Diversity, decentralization and independence are the keys to making better decisions with groups. Diversity is essential because it adds different perspectives, it minimizes the influence of strong willed individuals and it diminishes group think that can come from a narrow area of expertise. The sad truth is that the more influence we exert on each other, the more likely it is that we will believe the same things and make the same mistakes. In other words, we could become individually smarter while becoming collectively dumber. Decentralization is also critical in our highly specialized world. In our effort to become increasingly more productive and efficient, we have in the process become much more specialized. The very specialization that fosters productivity and efficiency is the result of ever more narrowing of interests. This specialized knowledge can be difficult to impart to the generalist or someone specializing in another area. Decentralization is also important because the closer a person is to the problem, the greater the likelihood they are to have a good solution. Independence is the final, critical ingredient. We are not always perfectly rational, nor do we have perfect knowledge. There are unintended consequences and luck yet our independence creates free markets that can achieve complex, mutually beneficial results. Our individual decisions may very well be flawed, but the aggregate of our decisions in the market works extremely well. There are a number of different initiatives underway to utilize a market approach to decision-making. The results to-date have been encouraging. It is not by accident that countries with free, independent markets have higher standards of living than do those with controlled markets. On a smaller scale, allowing individuals to pursue their own self-interest will produce collectively better results than dictating orders. The evidence is convincing and growing that groups make better decisions than do individuals. To be sure, there can be problems with this approach especially if the critical elements outlined in “The Wisdom of Crowds” are not adequately addressed. The Taking Aim Decision-Making Process provides a framework to help you and your organization capitalize on this new information. Give us a call to learn more. • New Website focused on Decision-Making If you have a subject that you would like to see covered in future issues of “Taking Aim,” please send me an email at aim@CannonAdvantage.com.
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