After seeing it cited in nearly half of the books I’ve read this year, I listened to the audio version of The Wisdom of Crowds by The New Yorker’s James Surowiecki this weekend on my round-trip drive between Detroit and Chicago.

The book is a fascinating read in any medium. It revolves around the notion that groups, endowed with sufficient diversity and decentralization (an important qualification), often make better decisions collectively than their most expert members do individually. The idea is somewhat counterintuitive thanks to angry mobs, market bubbles, and other cliches, but wide-ranging applications paint a clearer picture.

For instance, on January 28, 1986, the space shuttle Challenger disintegrated seconds into a mission, killing all seven crew members. Four companies appeared potentially responsible, and each initially saw its shares fall in trading. By the close of markets, however, three had mostly recovered. Morton Thiokol’s market capitalization, on the other hand, would continue to decline, despite inconclusive evidence to the cause of the disaster. More than four months later, NASA concluded an investigation that exonerated the other three companies and blamed a failed O-ring seal manufactured by Morton Thiokol. Remarkably, the market alone was able to reach this conclusion almost immediately through the collective wisdom of the crowd. Surowiecki does this anecdote much greater justice, but it’s just a sample of the wonderfully interesting stories in this book.

I also found the section on prediction markets for counterterrorism, elections, and other issues of political significance particularly interesting.

I strongly recommend The Wisdom of Crowds. If you’re inclined to read it, please support my site and me by making your purchase on Amazon via the link below. Thanks for visiting my site and for supporting me as an Amazon affiliate.

See larger image The Wisdom of Crowds (Kindle Edition) By (author) James Surowiecki List Price: $15.00 USD Release date August 16, 2005.