Limits to the Wisdom of the Crowd in Idea Selection

Abstract

An emerging management trend is to use the “wisdom of the crowd” to make decisions traditionally made by the top management alone. Research on this phenomenon has focused mainly on the capacity of crowds to generate ideas, but much less is known about a crowd’s capacity to select ideas. To study crowd-based idea selection in firms, this paper develops a mathematical model of a crowd that makes decisions by majority voting. The model takes into account contingencies that are of particular importance to firms, namely: the size of the population from which the crowd is drawn, the distribution of accuracy among members of the population, and the firm’s ability to recruit the population’s most accurate individuals. The results show that: (i) under relatively common conditions, increasing the size of the crowd may actually reduce performance; (ii) near-optimal performance can usually be achieved by a much smaller crowd than the one required to achieve optimal performance; (iii) determining the best crowd size depends critically on the firm’s ability to recruit “accurate” individuals; and (iv) good performance does not require large crowds unless all population members exhibit low levels of accuracy.

Keywords: information aggregation; organizational structure; organization design; majority voting; crowdsourcing

JEL Classification: D81, D23, D71, D73, O31, O32