The phenomenon where the collective opinion, estimate, or decision of a diverse and independent group of people is often significantly more accurate than the judgment of any individual expert.
Four essential conditions required for a crowd to be considered wise:
- Diversity of opinion: Each individual should have private information or a unique perspective, rather than relying solely on shared group knowledge.
- Independence: People’s opinions must not be dictated or heavily influenced by those around them. This prevents “groupthink” and unconscious conformity.
- Decentralization: People are able to draw on their own local and specific knowledge.
- Aggregation: There is some mechanism (such as averaging or a prediction market) for turning these private, individual judgments into a single collective decision.
In a properly independent group, the various random errors and biases of individuals cancel each other out.