By FERNANDO NOGUEIRA DA COSTA*
Nothing demonstrates that someone is capable of becoming an expert on topics as broad as “decision making”, “policy definition” or “strategy”.
James Surowiecki is the author of the book, published in 2004 with the title The Wisdom of Crowds. Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies, and Nations. Highlights: varied sources of financing are essential for new businesses. Many fail.
It is a well-known commonplace that public administration should not “pick winners” and therefore should not even try. But the truth is that there is no effective system, much less a centralized one, capable of indicating in advance who the “winners” will be.
After all, tens of thousands of new products are launched every year and only a small fraction of them manage to become popular. At all times, companies have invested large sums in losing ventures.
The effectiveness of a system lies in the rapid identification and elimination of losers. The effective system has the ability to generate many losers and then, recognizing them as such, eliminate them. Sometimes the seemingly most wasteful approach is the wisest…
It is not enough to generate a diverse set of possible solutions. It is also necessary for the crowd to be able to distinguish between good and bad solutions.
Groups are good at making these distinctions. But how important is diversity for the group? If you have a diverse set of possible solutions, does having a diverse group of decision makers make a difference?
Yes, without a doubt, according to James Surowiecki (2004) for two reasons. Diversity helps because it brings perspectives not otherwise present and eliminates, or weakens, some of the destructive characteristics of collective decision-making.
In fact, promoting diversity is more important in small groups and organizations than in large groups – such as markets or electorates. The size of many markets, coupled with the fact that they admit anyone with money (there are no other admission or entry protocols), means a certain level of diversity is almost guaranteed.
Markets are diverse because they are made up of people with diverse attitudes towards risk and different time horizons, investment styles and information. On the contrary, in teams or organizations, cognitive diversity needs to be deliberately selected for – and it is important to do so. After all, small groups are very exposed to a few individuals like determined leaders gaining too much influence and distorting the group's collective decision.
Diversity is a value in itself to the point that the simple fact of forming a very diverse group increases the chances of solving a problem. This does not mean that intelligence is not relevant: none of the agents must be ignorant and all successful groups include a certain proportion of highly qualified members.
The deduction is that the level of intelligence of the group alone is not decisive, because intelligence alone does not guarantee diversity of views on a problem. Groups made up only of highly qualified people tend to be less effective because they tend to be too similar in terms of their knowledge of what they already know how to do – and they don't question or innovate.
If we consider intelligence as endowed with a toolbox, the number of “ideal” skills contained in that box is small. Therefore, intelligent and/or educated people tend to be similar in terms of the frontier of knowledge and do not cross it, questioning it and going beyond it.
This borderline intelligence is usually seen as positive, but it means the group as a whole tends not to know as many other possibilities as it could. If you add some people without knowing much, but with other skills, you will multiply the group's cognitive capacity!
It seems like an eccentric conclusion, but it turns out to be true. Groups made up of “specialist” people who are too similar find it more difficult to continue learning, because each of their members contributes less and less new information to the common pool.
A common example is Brazilian economic journalism, in which you only find columns or opinions from orthodox neoliberal economists. Without methodological pluralism in the public debate, with biased analysis, it partially informs decision makers such as businesspeople and (e)readers.
The fact that cognitive diversity is important does not mean, however, that if you bring together a group of diverse but completely uninformed people, their collective wisdom represents a higher intelligence than that of the specialist. It does mean that if you bring together a diverse group of people with different degrees of knowledge and vision, it is better to entrust decisions to this plural and well-informed group rather than to one or two individuals alone, no matter how wise they may be.
If you find this difficult to believe, it is because it contradicts basic intuitions about intelligence and business. The claim that an organization made up of only the most qualified is not the best possible organization is heretical.
Above all, in a business world committed to the incessant “hunt for talent”, it is governed by the belief that a few “superstars” make the difference between business excellence and mediocrity. But, heretical or not, the truth is that the value of experts is overestimated in many contexts.
The fact that experts exist is beyond doubt. The game of a great chess champion is qualitatively different from that of a mere talented amateur.
We intuitively assume that intelligence is extensible and individuals who are excellent in one intellectual discipline should be equally excellent in others. But this is not the case for experts. In fact, specialized knowledge is “spectacularly restricted.”
But nothing shows someone being capable of becoming an expert on topics as broad as “decision making”, “policy definition” or “strategy”. Some individual skills are acquired through perseverance, hard work, and innate talent. Knowing how to predict an uncertain future and decide the best course of action given that future is not knowledge acquired in the same way.
A large group of diverse individuals is in a position to make more accurate predictions and make smarter decisions in front of the most knowledgeable expert in decision-making techniques.
Experts' judgments are not always consistent with those of other experts in the same specialty. They tend to disagree rather than agree with each other.
Also surprising is the deficiency of experts when it comes to “calibrating” their opinions. Making a well-calibrated judgment means having an accurate idea of whether that judgment is likely to be correct.
In this, experts are a lot like normal people, because they habitually overestimate their chances of being right. On the topic of excessive self-sufficiency, it was discovered that doctors, nurses, lawyers, engineers, businesspeople and investment bankers believe they know more than what is actually known…
On the same line, traders currency exchanges routinely overestimate the accuracy of their own forecasts of future exchange rates. Not only are they often wrong, but they also have no idea how wrong they are.
The motto of seers and believers is: “no matter how much evidence there is that seers do not exist, the believers will always be willing to pay for their existence…”
This does not mean, James Surowiecki repeats, that well-informed and experienced analysts are not useful in making good decisions. Regardless of the expert's knowledge and experience, their opinions and advice need to be brought together, compared with those of others, to get the best out of it – and the larger the group, the more reliable their opinion will be.
It also means that “brain hunting” operations, searching for the man with the solutions to all of an organization’s problems, are a waste of time. The group's decisions will be consistently better than those of the majority of individuals in the group, and will continue to do so, decision after decision.
The effectiveness of human experts varies greatly depending on the type of problem they are asked to solve. Overall, it is unlikely that a single person will always perform better in front of a diverse group of thinking people.
James Surowiecki illustrates the Social Proof heuristic: “you don’t think correctly when you only think like others”. Simply, because more people think an idea is correct, it doesn’t make it correct…
*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/4dvKtBb]
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