When people can learn what others think, the wisdom of crowds may veer towards ignorance.

In a new study of crowd wisdom – the statistical phenomenon by which individual biases cancel each other out, distilling hundreds or thousands of individual guesses into uncannily accurate average answers – researchers told test participants about their peers' guesses. As a result, their group insight went awry.

"Although groups are initially 'wise,' knowledge about estimates of others narrows the diversity of opinions to such an extent that it undermines" collective wisdom, wrote researchers led by mathematician Jan Lorenz and sociologist Heiko Rahut of Switzerland's ETH Zurich, in Proceedings of the National Academy of Sciences on May 16. "Even mild social influence can undermine the wisdom of crowd effect."

The effect – perhaps better described as the accuracy of crowds, since it best applies to questions involving quantifiable estimates – has been described for decades, beginning with Francis Galton's 1907 account of fairgoers guessing an ox's weight. It reached mainstream prominence with economist James Surowiecki's 2004 bestseller, The Wisdom of Crowds.

As Surowiecki explained, certain conditions must be met for crowd wisdom to emerge. Members of the crowd ought to have a variety of opinions, and to arrive at those opinions independently.

Take those away, and crowd intelligence fails, as evidenced in some market bubbles. Computer modeling of crowd behavior also hints at dynamics underlying crowd breakdowns, with he balance between information flow and diverse opinions becoming skewed.

Lorenz and Rahut's experiment fits between large-scale, real-world messiness and theoretical investigation. They recruited 144 students from ETH Zurich, sitting them in isolated cubicles and asking them to guess Switzerland's population density, the length of its border with Italy, the number of new immigrants to Zurich and how many crimes were committed in 2006.

After answering, test subjects were given a small monetary reward based on their answer's accuracy, then asked again. This proceeded for four more rounds; and while some students didn't learn what their peers guessed, others were told.

As testing progressed, the average answers of independent test subjects became more accurate, in keeping with the wisdom-of-crowds phenomenon. Socially influenced test subjects, however, actually became less accurate.

The researchers attributed this to three effects. The first they called "social influence": Opinions became less diverse. The second effect was "range reduction": In mathematical terms, correct answers became clustered at the group's edges. Exacerbating it all was the "confidence effect," in which students became more certain about their guesses.

"The truth becomes less central if social influence is allowed," wrote Lorenz and Rahut, who think this problem could be intensified in markets and politics – systems that rely on collective assessment.

"Opinion polls and the mass media largely promote information feedback and therefore trigger convergence of how we judge the facts," they wrote. The wisdom of crowds is valuable, but used improperly it "creates overconfidence in possibly false beliefs."

Images: The Euronext Amsterdam floor (Perpetualtourist2000/Flickr).

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Citation: "How social influence can undermine the wisdom of crowd effect." By Jan Lorenz, Heiko Rauhut, Frank Schweitzer, and Dirk Helbing. Proceedings of the National Academy of Sciences*, Vol. 108 No. 20, May 17, 2011.*