Crowdsourcing

Chapter 7-What the Crowd Knows: Collective Intelligence in Action, Cont.

Amsterdam: Wow. The Dutch know their crowdsourcing. I spoke yesterday to an audience of 350. I wanted to know who I was dealing with. I'm pretty accustomed to speaking to people who've never even heard of the term before. "Who's heard of Threadless.com?" I ask. Almost every hand goes up. That's okay, I figure, Threadless is an international sensation at this point. "Who's heard of InnoCentive?" Now I've got them. Outside of the sciences, almost no one I talk to has heard of InnoCentive. Two hundred hands shoot up. I was impressed, and a little intimidated. That said, the program was a smash, from my perspective anyway. The audience asked detailed, provocative questions and my hosts were gracious, witty and incredibly generous, treating me to a dinner both wonderful and wonderfully leisurely, in the proper European manner. But now I'm back, and so, I hope, are you. Below please find the continuation of Chapter Seven:

Marketocracy: Collective Intelligence Improvised

Think of TJ White as the argument for diversity, personified. In 1999 not many investors would have picked White as a candidate to manage their portfolios. Up to that point White had spent his life accumulating a lot of experience doing very little. He was an unremarkable student at his Midland, Texas high school. He signed up for an unremarkable six-year stint in the US Navy, followed by another six-year stint in Colorado pursuing what he calls his “second childhood,” working a series of jobs meant only to “support a lifestyle” that revolved around skiing and gold prospecting. He excelled at neither. One morning late that year White woke up, looked out at the parking lot outside his one-bedroom apartment and had a moment of clarity. “I was a loser. I was 30, and I had nothing. No skills, no college, no career.”

A few days after New Year’s Day 2000 White moved to Dallas, and the puzzle pieces started falling into place. He quickly found a job at a Home Depot not far from his house. “The manager was ex-Navy, and we hit it off,” White recalls. A few weeks after that he met the woman who would become his wife, at a get together of the Tall Texans of Dallas. “I stumbled across the Website when I first moved to Dallas,” explains White. “I’m six-foot-two, and Cheri’s six-foot-two. We got serious pretty quickly.”

Chapter 7-What the Crowd Knows: Collective Intelligence in Action, Cont.

I'm in a mad dash for the airport. Palo Alto speaking gig today, then Amsterdam tomorrow, then all the way back to LA next week. This would all be terribly thrilling if I was 27. At 37 it's exhausting. Still fun. But exhausting.

Great comments from the peanut gallery, including a few deserved dressing down (How do I expect to elicit comments when I don't respond to them. I'd blame kids and book, but believe I may have played that card too often already.) At any rate, here's the continuation of Chapter Seven.

Investing in the Future—Prediction Markets

In 1988 the civil rights activist Jesse Jackson shocked the nation by winning the Democratic primary race in Michigan, an outcome that neither polls nor political insiders had anticipated. At the University of Iowa, a handful of political scientists and economists had a very pragmatic reaction to the failure of the polls to predict Jackson’s victory: They decided to build a better system for predictions. Over the course of the next several months, and well in time for the general election between George H. W. Bush and Michael Dukakis, they created the Iowa Political Stock Market. Investors could buy up to $500 in securities that paid out according to the share of the popular vote each candidate received. Shares were priced between $0.00 and $1.00, and were paid out in full. If you snatched up Bush shares when they were running at 55 cents, you’d have made 45 cents for every share you purchased.

By November the results came in. The average error among all the major exit polls in the general presidential election that year was 2.5 percent. Not bad. But the Iowa Political Stock Market did much, much better, predicting the outcome to within one-tenth of a percent. “While the laws of statistic govern opinion polls,” said Robert Forsythe, one of the market’s creators, “the invisible hand of Adam Smith makes political markets work .”

Chapter 7-What the Crowd Knows: Collective Intelligence in Action

Whereas Chapter 6 explored the theory of collective intelligence, Chapter 7 looks at how collective intelligence is being employed in real-life crowdsourcing examples.

In the late fall of 2004 Karim Lakhani, a PhD candidate at MIT’s Sloan School of Management, was suffering from a common affliction among graduate students.  “I hit that point where I just couldn’t stand to spend any more time on my own dissertation,” recalls Lakhani. He’d been analyzing how innovations emerge in open source software, but after four years of work, he was burnt out. It was time for an extended vacation. “I stopped everything and read Neal Stephenson’s Baroque Cycle.” Stephenson’s trilogy is a work of historical fiction about the Age of Enlightenment in Europe, and it made a big impact on Lakhani. “It’s all about the establishment of the Royal Society and the dawn of rational thinking about the world and the invention of calculus.” By Lakhani’s lights, the Baroque Cycle was a narrative history of innovation.

One passage in particular caught Lakhani’s attention. Stephenson related the true story of the longitude prize. In 1714 the British established a commission offering 20,000 pounds (roughly $6 million today) to anyone who could solve the mystery of longitude. The Royal Navy’s inability to measure lateral progress across the oceans had resulted in the loss of untold numbers of ships and their cargoes, causing a serious drain on government finances. “The top scientific minds of that time, including Isaac Newton, had tried to find a device that could determine longitude, and none succeeded,” notes Lakhani. The solution—a clock that operated with superb accuracy, even during the rigors of an overseas voyage—was developed by John Harrison, an uneducated cabinetmaker from Yorkshire. “I read that and thought, ‘Huh. Kind of like open source. Someone poses a problem and all sorts of random, strange people show up and say I’ve got an answer for you, and it’s never the one you’d anticipate.” The longitude prize constitutes the earliest known example of crowdcasting—broadcasting a problem to the widest possible audience in the blind hope that someone, somewhere—maybe even a Yorkshire cabinetmaker—will come up with a solution.

Chapter 6: The Most Universal Quality—Why Diversity Trumps Ability, Cont.

When A Crowd Isn’t a Crowd

Diversity is essential to animating the collective intelligence that emerges in models like the MATLAB contest, but the existence of diversity isn’t enough. It must also be maintained. Get enough people together—be it in a bar or a chat room—and a mysterious dynamic kicks in. People either accentuate their differences and polarize into opposing camps, or they downplay their differences altogether in order to reach a consensus. Both phenomena have the same net effect: the diversity within the crowd is diminished. Humans have evolved over many millennia into highly social creatures. In many circumstances, our ability to reach an amicable agreement meant the difference between life and death: “A mammoth is charging. Shall we run or poke him with our spears?” But when collective intelligence is in play, as it is in such crowdsourcing models as information markets and problem-solving networks, consensus is an undesirable outcome.

In 2004 James Surowiecki published The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations. The title of Surowiecki’s book is a winking reference to Charles Mackay’s 1841 classic, Extraordinary Popular Delusions & the Madness of Crowds , a stern indictment of the herd mentality that lead to such disasters as the Dutch tulip mania. (Needless to say, the term crowdsourcing owes a debt to both authors.) While theories of group intelligence pre-dated Surowiecki’s book by decades, and in fact had recently come back into vogue in fields as disparate as sociology and business management, The Wisdom of Crowds captured the popular imagination in a way no other work on the subject ever had. The book contained an array of persuasive examples in which the crowd proved itself wiser than its smartest member. How did a crowd of fairgoers in rural England guess the weight of a prize-winning steer within one pound? How did a classroom of students guess the number of jelly beans in the jelly bean jar? How did the audience for the game show Who Wants to Be a Millionaire consistently beat the experts? Through the wisdom of crowds. Such anecdotes have acquired an almost magical patina, entering the collective imagination and becoming fodder for cocktail conversation and water cooler discussion. Unfortunately they were shorn of Surowiecki’s careful analysis.

Urgent Appeal! Crowdsourcing.com in Search of the Crowd

Let's call a spade a spade: I'm a terrible blogger. Or at least, I've found the demands of a (young) family and (merciless) book to be incompatible with the kind of constant attention a healthy blog requires. The predictable response is that traffic fell off last year while I concentrated my efforts on the book at the expense of the blog.

While I look forward to putting the blog back on the front burner in a few weeks when I've given my publisher final changes to my book, that will be too late to make my own little crowdsourcing experiment a success (For late arrivals, this consists of publishing excerpts of the book on this blog, then collecting the most incisive, witty and informative of the resulting comments in an appendix that will be published in my upcoming Crowdsourcing Book). The problem: Too few comments and, more to the point, too few commenters. This is a shame because I'm confident that given enough eyeballs this limited but, to my mind, significant act of crowdsourcing would constitute a nifty new model of book publishing. Why, in this age of instantaneous publishing, should critics wait until the publication of the book to make their views known? Wouldn't the reader be better served by being able to encounter multiple viewpoints in one handy volume? Or at least that's my three-quarter-baked idea.

At any rate, I'm not only asking you to start reading and writing on crowdsourcing.com, but also to spread the word. I know at least a few of my regular readers write influential blogs of their own. If you support my effort or even—especially—if you think my ideas deserve a good old fashioned literary beat down, lend me a hand.

Chapter 6: The Most Universal Quality—Why Diversity Trumps Ability

I'm out of town visiting family this week, but stole a few minutes away at the local library to post Chapter 6. This chapter begins the second section of the book, which explores Crowdsourcing in action (as opposed to the first section of the book, which is devoted to the conditions that made crowdsourcing possible-nay-inevitable. For anyone just tuning in, I'm hoping to collect critical comments on these excerpts, which will then be published in an appendix in the crowdsourcing book due out this July.

Chapter 6

“There were never in the world two opinions alike, any more than two hairs or two grains. Their most universal quality is diversity.”        — Michel de Montaigne

Looking for a diversion one winter evening in 1995, Caltech professor Scott E. Page built a computer model in which “artificial agents”—little computer programs that interact according to rules written into their computer code—tried to solve a difficult problem. Such computer simulations are helpful to economists because they provide a controlled environment in which to test how humans, that most unpredictable of species, interact in complex systems like financial markets.

Page ran his simulation using two groups of agents. One was meant to represent the best and the brightest possible solvers—we’ll call this the Mensa group. The other group was composed of agents with a wide variation of problem-solving ability—some of the agents were talented, but many were not. It was as if he’d stopped by the faculty lounge at a mid-tier university and culled out everyone wearing brown socks. To Page’s great surprise, the brown socks outperformed the Mensa agents. As a random collection of mathematicians could hardly be expected to outperform Mensa’s best minds, Page decided to fiddle with his simulation, changing the rules by which the agents interacted. He got the same result. Still incredulous, he rewrote the program in a different computer language. The brown socks still won, over and over and over again. Page wanted to know why.

What began as a study break blossomed into a decade-plus research project, culminating, in 2007, with a book entitled, “The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies.” By applying logical rigor and mathematical precision to collective intelligence, Page has created a theoretical framework to explain why groups often outperform experts. Why did the brown socks beat the Mensa agents so consistently? The brown socks weren’t as talented as the Mensa members, but they had something better: Diversity.

Chapter 5: The Rise and Fall of the Firm, Cont.

New readers: I've been posting excerpts of the book in order to elicit critical comments. These will be published as an appendix in the hardcover version of Crowdsourcing, and may even make it into the margins of later editions. Full credit given, naturally, to the commenter. Below is the continuation of Chapter 5: Turning Community into Commerce:

What We Talk About When We Talk About Work

By one measure at least, YouTube is a very small company. Before being acquired by Google its 67 employees fit into two floors of an unremarkable San Bruno, California office building. That’s exactly one fewer employee than works at the average American nursing home. But by another measure, YouTube is a far larger company. At the time of its acquisition by Google, YouTube was valued at $1.65 billion. That number could seem unreasonable by conventional measures, but, YouTube is hardly a conventional company.

Google didn’t pay for the expertise housed within that San Bruno office, or even Youtube’s powerful brand. It paid for the millions of users who create and submit videos to Youtube, and for the traffic they drive to the site. It paid, in short, for the community—the people who use it to engage in a conversation in a language of moving images. YouTube is far from the only company whose primary asset is its community. Facebook employs roughly 700—a skeleton crew for a company that was valued, at the time of Microsoft’s investment in the social networking site, to be in the region of $15 billion. As of early 2006 Wikipedia employed only two people, one of whom worked part-time. By contrast, Britannica employed 350 in that same period. In these cases, the community is taking the place of the corporation.

The conventional corporation isn’t going away anytime soon, but its hegemony is certainly under assault. Despite its unchallenged reign throughout the 20th Century, the traditional corporate structure is an artifact of the industrial revolution. The company’s primary function, as British economist Ronald Coase observed in his 1937 essay, is to reduce transaction costs. Coase pointed out that contrary to the prevailing view, the market is not always efficient. Because a commodity is rarely immediately available in exactly the quantity he or she might want, at precisely the time they want it, there are additional costs that must be factored into its purchase. How long did the buyer search for it? Did they have to risk revealing their business strategy, or a trade secret, in acquiring it? All this and more should be factored into the transaction cost, Coase argued. And his central insight was that a firm emerges when it becomes more efficient to produce a commodity in-house than to contract an outside vendor to provide it, and that firm will continue to grow until it begins to buckle under its own weight, at which point it once again becomes cheaper to outsource the work using the marketplace . This makes intuitive sense to us today, and indeed the firm continues to be the basic unit of economic production.