Sunday, July 10, 2016

The (un)Wisdom of Crowds

Does the Wisdom of Crowds work for elections? Should we think that the result of the British Brexit vote, because it was a free vote put to the people, was not only democracy in action, but also a wise method for a nation to make such a decision?

I've touched on this matter in my latest Bloomberg View column, drawing on a new study on group decision making by researchers from the Santa Fe Institute and the Max Planck Institute for Human development in Berlin. This study asks under what conditions we should expect larger crowds to make better decisions, and finds that, in general, this is only the case when the problems being faced are relatively easy -- so that any any individual has greater than 50% chance of getting the right answer. When problems are diffficult, the wisdom of crowds tends to fail, and small groups make better decisions.

Most importantly, they find that if the problems faced by a group come in an unpredictable mixture of easy and hard -- the more realistic case -- then the best decisions are made by groups of fairly small size, ranging from 10 to 40 or so. This insight doesn't apply directly to the UK referendum, which didn't necessarily have a right or wrong answer, but I think it does back up the view that a referendum is an extremely crude means for a nation to decide such as complex matter as whether to stay in the EU or not. As the researchers point out, many democratic decision making bodies around the world -- from juries to town councils to parliamentary committees -- make decisions with a fairly small number of people, usally from 5 to 40. There may be good wisdom in this.

And maybe it suggests that the best path forward for the UK is for parliament to weigh the decision to leave the EU using all its resources, and not being constrained in advance by the referendum result. Whether they ultimately decide to leave or to stay, that also would be democracy in action.

The Bloomberg thing is here.