Wisdom of crowds

As explained in Demand Forecasting Best Practices

Wisdom of crowds is the phenomenon in which aggregating diverse, independent judgments produces a more accurate collective estimate than most individual judgments.

Wisdom of crowds improves predictions by aggregating different people’s judgments. Its accuracy depends on aligned objectives, diverse mindsets, and independent work and judgment. section 16.3.1

Check these conditions before treating an average judgment as reliable:

• Align objectives so participants make their best unbiased estimates rather than pursuing hidden interests. section 16.3.1
• Preserve mindset diversity and independence of work and judgment so individual biases can compensate rather than reinforce one another. section 16.3.1

Estimating cattle weight

In a cattle-weight competition, averaging many guesses produced a virtually perfect estimate and outperformed both the winning individual and the experts. In demand planning, a team whose members all favor high estimates will still produce an overly optimistic forecast. section 16.3.1

Figure 16.5 Wisdom of the crowds’ three pillars

Use the figure to inspect the three conditions required for collective forecasting accuracy. section 16.3.1

How Demand Forecasting Best Practices covers it

How deep it goes

Defines the principle and identifies three pillars, elaborating objective alignment through a biased-demand example.

Examples

Uses a cattle-weight competition and a demand-planning team making uniformly high estimates.

What you can do after

Apply it to judgmental demand forecasts by aligning objectives before aggregating independent judgments.

How it connects

Connects judgmental forecasting with demand forecasts, prediction accuracy, and bias.

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Related concepts

• independence of work and judgmenthas part · Independence of work and judgment is the practice of having contributors form assessments separately before group influence occurs.
• objective alignmenthas part · Objective alignment is the condition in which contributors share goals that support unbiased estimation rather than strategically distorted predictions.
• mindset diversityhas part · Mindset diversity is the inclusion of contributors with different backgrounds, perspectives, information sources, and reasoning styles.
• demand forecastuses · A demand forecast is an estimate or prediction of the quantity of a product, service, or resource that will be needed during a specified future period.

This explainer was generated by Manning's knowledge graph from the text of Demand Forecasting Best Practices. The section links point to the parts of the book it draws on.