Social network vs Wisdom of crowd

So far, since the mass adoption of the Internet (web) we had two major bubbles. One - the dot com bubble of the late 1990s; another - the housing and financials bubble of the late 2000s (the crash of 2008). The paradox is that the more information consumers and analysts have access to, the less they seem to be able to make reasonable conclusions from it. In other words, access to the broader wisdom of the crowds should help, not hurt decisions.

New research by Jan Lorenz, et. al. provides a possible explanation for the reduction in "wisdom" phenomenon,

The wisdom of crowd effect is a statistical phenomenon and not a social psychological effect, because it is based on a mathematical aggregation of individual estimates.

In contrast, we demonstrate by experimental evidence (N = 144) that even mild social influence can undermine the wisdom of crowd effect in simple estimation tasks.
Although groups are initially “wise,” knowledge about estimates of others narrows the diversity of opinions to such an extent that it undermines the wisdom of crowd effect in three different ways. 

- The “social influence effect” diminishes the diversity of the crowd without improvements of its collective error.
- The “range reduction effect” moves the position of the truth to peripheral regions of the range of estimates so that the crowd becomes less reliable in providing expertise for external observers.
- The “confidence effect” boosts individuals’ confidence after convergence of their estimates despite lack of improved accuracy.

 The increase in social interaction over the Internet probably leads to similar "wisdom" deterioration effects.

tags: reverse brainstorm, psychology, social, network,