The ‘Wisdom of Crowds’ theory, as popularised by James Surowiecki’s 2004 book of the same name, is an importantâ€”if misunderstoodâ€”theory that has influenced a lot of recent online ventures that rely on social networks and collaboration to work intelligently.
For those who want to take advantage of the wisdom of crowds for their own ventures, Derek Powazek (who has worked at least one such site; Technorati) offers a primer on the wisdom of crowds theory and how to successfully implement it online.
The web, with its low barrier to entry and permeable social boundaries, is the ultimate medium through which to explore the finer points of the wisdom of crowds. You’re surrounded by online examples: Google’s search results. BitTorrent. The “Most E-mailed” stories on your favorite news site. Each is powered by wisdom gleaned from crowds online.
You need a few things to enable online crowds to be wise.
For other related information (i.e. how attempts at harnessing collective intelligence succeed and fail)Â the Wikipedia entry for Surowiecki’s book is a great place to start.
Monday NoteÂ uses theÂ case study of LG eliciting designs for future mobile phones to showÂ how crowdsourcing is changing how design is doneâ€¦ and how it’s starting to change advertising, too.
Altogether, LG is going to spend $75,000, to be distributed among 43 awards. [â€¦] Let’s face it: for a company such as LG, seventy-five grand for what could lead to a revolutionary phone design is pocket change. For a tenth or a fiftieth of the cost of a classical business-to-business competition, LG will end up with a vast array of proposals. [â€¦]
[Crowdsourcing] is a powerful deflation engine for the design world. [â€¦] The process prices traditional design firms out, it weakens their erstwhile pricing power. Among these firms, only the lightest structures will agree to bid for the LG design job in the hope of winning and thus being able to establish a direct contact with the cell phone maker. Others, bigger firms, are used to ask for stratospheric retainers (in the tens of thousands of dollars) simply to consider the brief. Such entities are definitively out of the game; they will stare in desperation as an increasing number of saving-obsessed big companies migrate to a new genre.
FT Predict is more than just a game. Predictive markets collect the wisdom of the crowd in a single dynamic price unit that can be far more sensitive to changes in the market than standard survey-based research. And a growing number of today’s leading companies embrace predictive market models in order to harness the wisdom of their own crowds to improve decision-making.
In The Wisdom of Crowds, prediction markets are praised for being a useful application of crowd intelligence. They sounded interesting when I read about them, now I’m going to be part of one.
(Side note: the book has an excellent Wikipedia entry.)