Saturday, May 1, 2010
The wisdom of behavioural economics
At the time, I wasn't familiar with the term 'behavioural economics'. But have found this stuff interesting ever since I randomly picked up a copy of The Wisdom of Crowds in Hughes & Hughes several years ago. A signed copy from author James Surowiecki, no less.
Not sure if Surowiecki's book is technically considered behavioural economics actually. It is more pop-culture stuff, like Freaknomics or Gladwell's Tipping Point. (Both wonderful books if you haven't read them.)
The basis of his book is that the combined intelligence from a crowd of people is higher than that of any of the individuals in that group. This feels at odds with what we'd expect. And as a culture, we look to the hero, the individual that can fix everything. There are lots of books about finding the smart leader that will get bring companies back from the brink.
The book title itself is a word-play on the 1841 book 'Extraordinary Popular Delusions and the Madness of Crowds' by Charles Mackay, a collection of stories about herd mentality. Surowiecki's premise is that as long as each person's decision can be made independently (so no social pressure to conform), the combined result will be better.
For example, if you ever find yourself on the gameshow 'Who wants to be a millionaire? - you have a better chance of getting the right answer by asking the audience than calling the smartest person you know. The 'Call a Friend' option delivers the correct answer 65% of the time. The audience pick the right answer 91% of the time.
This area is becoming more popular and mainstream within marketing. So I'm pulling together the most interesting learning, experiments and stories from this area to present to my team. I'll post them here as I scribble them down. Feel free to send me relevant blog or article links if you have them.