Collective Wisdom and Information Cascade

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When individuals guess the weight of a cow, each person's unique perspective and life experiences contribute different pieces of information, resulting in a collective wisdom where individual errors tend to cancel each other out. This collective insight is remarkably accurate due to the diversity of inputs. However, there are instances when collective decision-making fails, such as in stock market panics or bubbles, where individuals tend to follow a trend without critical thinking, leading to an 'information cascade.' This cascade effect is observed when individuals base their decisions on others' actions rather than independent judgment.

This episode originally ran in 2015.

About one hundred years ago, a scientist and statistician named Francis Galston came upon an opportunity to test how well regular people were at answering a question. He was at a fair where lots of people were guessing the weight of an ox, so he decided to take the average of all their guesses and compare it to the correct answer.

What he found shocked him. The average of their guesses was almost exactly accurate. The crowd was off by just one pound.

This eerie phenomenon—this idea that the crowd is right—drives everything from the stock market to the price of orange juice.

So, we decided to test it for ourselves. We asked Planet Money listeners to guess the weight of a cow.

Spoiler: You can see the results here.

This episode was hosted by David Kestenbaum and Jacob Goldstein. It was produced by Nadia Wilson and edited by Bryant Urstadt. Alex Goldmark is Planet Money's executive producer.

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