Wednesday, March 30, 2005

Yet Another Look at Democracy

James Surowiecki's The Wisdom of Crowds is a flawed masterpiece. Surowiecki seems to understand how unregulated markets make people better off, but in the end he succumbs to the notion that we can regulate our way to "the common good" through democracy. Surowiecki nevertheless gets it right when he says this:
[A] group of far more likely to come up with a good decision if the people i the group are independent of each other....

Independence is important to intelligent decision making for two reasons. First, it keeps the mistakes that people make from becoming correlated. Errors in individual judgment won't wreck the group's collective judgment as long as those errors aren't pointing systematically in the same direction....Second, independent individuals are more likely to have new information rather than the same old data everyone is already familiar with. The smartest groups, then, are made up of people with diverse perspectives who are able to stay independent of each other. Independence doesn't imply rationality or impartiality, though. You can be biased and irrational, but as long as you're independent, you won't make the group any dumber.
If only Surowiecki had stopped there, on page 41.

Democracy undoes independence. It imposes on everyone the mistakes and mistaken beliefs of a controlling faction. It defeats learning. It defeats the sublime rationality of markets, which enable independent individuals to benefit each other through the pursuit of self-interest.