socialmedian: Diversity, Aggregation, Incentives

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Diversity, Aggregation, Incentives

Source: The Future Buzz

Nov 02, 2009

Summary

In Think Twice: Harnessing The Power of Counterintution, Michael J. Mauboussin postulates that a diverse crowd will always predict more accurately than the average person in the crowd.

He takes social scientist Scott Page’s diversity prediction theorem (collective error = average individual error – prediction diversity) a step further to identify the three conditions which must be in place to know when crowds will predict well: diversity, aggregation and incentives:

Each condition clicks into the equation. Diversity reduces the collective error. Aggregation assures that the market considers everyone’s information. Incentives help reduce individual errors by encouraging people to participate only when they think they have an insight.

If you think about it, this is one of the core ways we derive value from the web. Consider: