According to James Surowiecki's 'The Wisdom of Crowds,' which of the following is an essential characteristic required for a crowd to make a smart collective decision?

Diversity of opinion and knowledge. Diversity ensures that the individual errors made by members are independent and uncorrelated, allowing them to cancel out when averaged.

What primary psychological mechanism drives 'groupthink,' often leading to worse collective outcomes?

The desire for harmony and conformity. Groupthink, coined by Irving Janis, prioritizes maintaining group cohesion and harmony over critically evaluating facts or dissenting opinions.

When individuals in a group disregard their own private information and instead base their decisions solely on the observed actions of those who acted before them, this is known as a(n):

Informational Cascade. An informational cascade occurs when early decisions, even if poorly informed, lead subsequent actors to ignore their own data and 'herd' with the crowd.

Francis Galton first documented the principle of crowd wisdom in 1906 by observing a crowd’s aggregate estimate of what object?

The weight of an ox at a country fair. Galton found that the median guess of the crowd regarding the weight of an ox was astonishingly close to the actual weight, despite individual guesses varying wildly.

In the context of crowd wisdom, what typically happens to individual errors when the four criteria (diversity, independence, decentralization, aggregation) are met?

They cancel each other out.. The mathematical basis of crowd wisdom is that if errors are independent, the mean of the errors approaches zero.

Which scenario is most likely to produce 'crowd madness' or irrational behavior?

A high-stakes situation where individuals communicate heavily and are emotionally charged.. High communication and emotional intensity destroy independence and facilitate emotional contagion, making the crowd more likely to herd toward poor outcomes.

When a group discussion pushes members to adopt more extreme positions than they held individually before the discussion, this is called:

Group Polarization. Group Polarization occurs because members selectively rehearse arguments supporting the dominant initial view, reinforcing and strengthening that position.

Why does a lack of independence undermine the 'wisdom of crowds'?

It turns the errors into correlated errors.. If errors are correlated (i.e., everyone is influenced by the same bad information or the same early actor), the errors stack up instead of canceling out, leading to collective error.

In market behavior, the classic example of 'Tulip Mania' in 17th-century Holland is a prime example of:

A speculative bubble caused by herding and panic buying. Tulip Mania exemplifies how collective irrationality and herding behavior can drive prices far beyond intrinsic value, leading to a crash.

What is the term for the rapid, sometimes unconscious, transfer of emotional states or behavior patterns from one person to another in a crowd?

Emotional Contagion. Emotional contagion is critical to phenomena like panic attacks or riots, where emotion spreads rapidly through non-verbal cues.

What decision-making structure is often employed to mitigate groupthink by ensuring alternative perspectives are forcefully considered?

Appointing a Devil's Advocate. The Devil's Advocate intentionally challenges the dominant consensus, forcing the group to confront potential weaknesses in their plan.

The failure of the Space Shuttle Challenger mission is often cited as a classic corporate example of which failure mechanism?

Groupthink. Investigation into the Challenger disaster highlighted how NASA suppressed or marginalized internal dissent and technical warnings to maintain consensus and meet schedule deadlines.

In complex problem solving, when is a large, diverse crowd more likely to outperform a single, highly specialized expert?

When the problem requires aggregating many independent, decentralized data points.. Crowd wisdom excels at estimation problems where combining diverse inputs leads to a highly accurate average.

Which of the following is NOT one of the necessary conditions for a crowd to be 'wise'?

Homogeneity. Homogeneity (sameness) is the opposite of the required Diversity. If everyone thinks the same, the collective decision is simply an amplification of a single bias.

If a group discussion results in an optimal decision, but only because key facts known by a single minority member were finally brought forward, this addresses what organizational barrier?

The Hidden Profile Problem. The Hidden Profile Problem describes situations where a group fails to share and utilize critical, unshared information that would lead to the best decision.

The famous conformity experiments involving judging the lengths of lines, conducted by Solomon Asch, demonstrated the powerful influence of:

Peer pressure and social proof. Asch's experiments showed that many individuals would knowingly give a wrong answer simply to conform with the majority of the group (social proof).

The 'herd instinct' in financial markets is primarily driven by which factor?

Fear of missing out (FOMO) and fear of being wrong alone.. Herding is less about rational analysis and more about behavioral biases, particularly FOMO and the safety found in following the crowd, even if the crowd is wrong.

When a crowd makes a decision based on an event being easily recalled or highly dramatic (e.g., exaggerating plane crash risk over car crash risk), they are exhibiting reliance on which heuristic?

Availability Heuristic. The Availability Heuristic causes people to judge the frequency or likelihood of an event based on how easily examples come to mind.

Why is 'decentralization' important for crowd wisdom?

It ensures individuals rely on unique, local, specialized information.. Decentralization allows expertise and specific knowledge to reside where it is most relevant, preventing the reliance on a single, general source.

In the process of aggregation, if the crowd’s individual estimates are widely spread but unbiased, which statistical measure generally provides the most accurate collective decision?

The Mean (average). The Mean (average) is the standard method used to aggregate independent, unbiased estimates, as the random errors cancel out around the true answer.

What is the danger of high structural hierarchy and a strong, charismatic leader in group decision-making?

It encourages subordinates to self-censor and conform to the leader's implied preference.. Strong hierarchy often destroys independence, leading subordinates to prioritize pleasing the leader over presenting contrary data, a hallmark of groupthink.

In a situation of high panic (e.g., a fire), why does a crowd often make poor collective decisions regarding evacuation routes?

Emotional contagion overrides rational assessment and leads to physical herding.. Panic induces high emotional contagion, overwhelming cognitive functions and leading to irrational physical herding toward bottlenecks.

A classic failure of crowd wisdom occurs if all participants are provided with the exact same misleading initial statistic (an anchor). Why?

The anchoring effect introduces correlated errors.. If everyone starts with the same faulty information, their errors are now correlated, meaning the collective average will be systematically biased away from the true value.

Which term describes the tendency for members of a cohesive group to strive for unanimity, thereby overriding their motivation to realistically appraise alternative courses of action?

Groupthink. This is the definition of Groupthink, where the need for consensus trumps critical analysis.

Crowd wisdom works best when the problem being solved is based on:

Fact-based estimation or prediction.. Crowd wisdom relies on the mathematical averaging of factual errors, making it highly effective for objective estimation and prediction problems, less so for subjective or moral dilemmas.

QuizKnowledge

The Paradox of the Crowd Mind: Wisdom vs. Madness

Test your knowledge on the behavioral science behind collective decision-making, exploring concepts like crowd wisdom, groupthink, and informational cascades.

25 Questions•20 Mins•Medium