Wisdom of Crowds

  Scott E Page  - Coursera  The Diversity Prediction Theorem

Where does collective wisdom come from?

People make predictions based on different models.   We know more accurate individuals lead to more accurate predictions. 

However, in addition, a more diverse crowd leads to more accuracy.

Example :

Amy predicts 10   error (10-18)^2  = 64

Belle predicts 16   error  (16-18)^2 = 4

Carlos predicts 25 error (25-18)^2 = 49     

Average error = Total error/3     = 117/3   = 39

Average value is 17

Actual value is 18

How accurate is the crowd?  Crowd error  =  (17-18)^2 = 1

Diversity

Amy   (10-17)^2 = 49

Belle  (16-17)^2 = 1

Carlos (25-17)^2 = 64

Average diversity = 114/3 = 38

 Because 

In the example the crowd error 1= the average error 39 –  the diversity 38

For the wisdom of crowds to occur the crowd error needs to be small or it is not wisdom.  The average error needs to be large or it is not a hard problem, so the diversity must also be large.   The diversity comes from people using different models.   Individual ability and diversity are equal partners.

The Madness of Crowds comes from like-minded people that are all wrong.

Large CE  + Large AE – Small diversity

Fire Time  - At sunset, for those on Puget Sound looking east it appears that Seattle is burning.

 Innovation

The percolation modelof innovation.  With each coin flip each square has a chance of turning grey: % P.   Innovation occurs when there is a continuous path from top to bottom.   It is not until P > 59% that there is a tipping point and a huge increase in innovation.   This is why often there are several inventors competing to see who can be first.  To have innovation society needs to support the research that turns the squares grey.

 

The Solow growth  model based on labor and the use of machines shows that without innovation growth will level off

 Without innovation:

 

However the innovation multiplier  A makes labor more productive.   Government support that promotes innovation  includes government that is strong enough to protect property rights so people will invent,  Government that is weak enough not to take all the spoils,  and government and cultural support of cooperation. Trust varies in different cultures.