1906 - The Wisdom of the Crowds

Wisdom of the Market
Wisdom of the Market
Galton
Francis Galton

English scientist Francis Galton was a statistician who developed the important concepts of correlation and regression toward the mean. He discovered in the early 1900s that the collective wisdom of many is more accurate than the wisdom of a few. Galton arrived at his discovery of "The Wisdom of the Crowds" at a livestock convention, where a crowd of almost 800 people were asked to guess the correct weight of a butchered ox. Surprisingly, the average guess of the entire crowd was very close to the ox's actual weight, only one pound off. No one individual came as close to the correct answer. In a 1906 Nature Magazine article titled, "Vox Populi" (Voice of the People), Galton concluded that a group of individuals making independent guesses would make a more accurate assessment than any individual would on their own1. The world's equity markets support Galton's discovery, as about ten million investors independently and collectively estimate the fair value of stocks every trading day.

In 2005, New York Times journalist and author James Surowiecki eloquently detailed the accuracy of the collective wisdom of all of us in his popular book, The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations.2 His book describes and affirms Galton's findings that large groups of people are smarter than even the experts.

    -1 Francis Galton, "Vox Populi," Nature, vol. 75, March 28, 1907.
    -2 James Surowiecki, The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations (New York: Double Day, 2005).
Step 2Francis GaltonJames Surowiecki