Collective Intelligence Experiment Intro
August 4th, 2006As you may have guessed from some of my previous articles (see "Related Posts" below for a list) discussing the science of collective intelligence and the wisdom of crowds, I am fascinated by the way groups of people can collectively arrive at decisions that are superior to the decisions of any single individual. Specifically, I am interested in how this dynamic interacts with capital markets. I am not going to go over all of that stuff again (please read the articles for a more in depth discussion). After several failed attempts to find some reliable tests on the topic and/or a website or two that addresses it, I have decided to conduct my own simple experiments. If you would like to be a part of them then please read below.
One of the cornerstones of the collective intelligence theory is that in order for groups to make wise decisions there must be some degree of independence in their thought. If the group is unduly influenced by something then this may skew the results and make them less valuable then a result produced by the collection of independent ideas. In general, the stock market is a great aggregator of individual, independent information. However, the proliferation of financial television, financial news websites, and even blogs has made it much easier for us to succumb to the demons of dependence. This is how we end up with asset bubbles. Suppose you reach an independent decision about a stock to purchase and then you turn on CNBC and they have a bit about the very same stock you were going to purchase. "What traders are saying" is that your stock is going to tank. Will that have an adverse effect on your decision? Most probably. There are very few of us who can stick to our guns in the face of "group" consensus.
The key then to extracting collective intelligence is to make sure the group you are extracting the information from is relatively disconnected from each other AND to make the request that they answer questions intuitively and quickly rather than to go do research and/or wait until they hear what someone else has to say. Difficult, yes, but this is what I want to try and do with my own experiments here.
Each Friday (until I tire of the exercise), I will post a survey that will have several questions on it. They will all be multiple choice (we are much better at choosing between possible solutions as opposed to "creating" them from thin air) and they will all be measurable. I will leave the survey up for one week and then I will post the results. The only people who will be allowed to see the results will be the ones who answered the survey. This is what economists call incentive. After you complete the survey you will be directed to a page with a password on it for the results page that will be created at a later date. I will make a blog post letting you know when it is available (probably each Thursday).
In addition to the results I will provide my own comments about them and have a look at how our results compared to reality (where applicable). Some of the questions will be designed to test true collective intelligence and some will be designed to test the effect of dependence. I may ask about something that is a hot topic in the news so that everyone will at least have heard some opinion of it from others. All I ask of you is that you follow these few simple rules when answering the questions.
- Use your gut instinct and the knowledge you already have to answer the question immediately. Do not go do research or try to read too much into it. This is not a "test" it is a survey. You are NOT personally being scored.
- Do not look at the survey and then come back and answer it at a later time. If you do you may be prone to dependence biases that you pick up in the interim.
- If you know others who read the site DO NOT discuss your answers with them. Let them make their own decisions.
That's about it. Hopefully this will be educational for all of us. You may even learn a thing or two about your own personal biases by comparing them to the group idea. It should be fun.
Note: All the questions will be related to the capital markets in one form another. I am interested in very little else right now!
"Who decides when the applause should die down? It seems like it's a group decision; everyone begins to say to themselves at the same time, "Well, okay, that's enough of that."
-George Carlin
"And that my friends is dependent decision making."
-Jeff Howard
Disclaimer: this post is for informational purposes ONLY. Please read the disclaimer before even thinking about relying on me to make a financial decision!
Related Posts:
Waxing Philosophical on Markets, Chaos Theory, and Crowd Psychology
The Human Side of Markets
More on the Wisdom of Crowds and Collective Intelligence
Collective Intelligence Experiment - Survey #1
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