Wisdom of Crowds: A Literature Review

Master's thesis in Industrial EconomicsThe wisdom of crowds is an idea that could be a valuable resource if it is used, and even more valuable if it us used in the best way. There are many possibilities, and this thesis’ purpose is to find out if the wisdom of crowds is beneficial for getting more accurate crowd predictions, and how the aggregation and information method, crowds’ diversity, expertise and size play a role on the prediction accuracy. To get an overview of the empirical literature on the subject a traditional literature review is conducted, and the empirical literature is found using Google Scholar and the search words wisdom of crowds, crowd predictions and collective intelligence is used. There are 27 papers that is found and used for the literature review. The results of the literature review show that there are several great ways to aggregate the individuals’ predictions, and the crowds are more accurate than most of the individuals in them. Distributing information to the individuals will make the crowd less diverse but as long as the reduction in diversity is not too large, the added information can still manage to make the crowd more accurate. Expertise does not give a significant more accurate crowd prediction; it is more important to have a diverse crowd. The size of the crowd can be small when added factors are used for aggregating, like accentuating the individuals who previously predicted good, but for the arithmetic average it is better with larger crowds