is3000 session vii collective wisdom

8/3/2019 IS3000 Session VII Collective Wisdom

1/38


2/38

Learning Objectives

Understand the meaning of collective wisdom

/ collective intelligence

Be able to explain the mechanisms that enablecollective wisdom

Identify the business value

Be aware of the necessary conditions and

constraints


3/38

Definition: Collective Intelligence

Collective intelligence is a form of intelligence thatemerges from the collaboration and competition of manyindividuals. Collective intelligence appears in a wide

variety of forms of consensus decision making inbacteria, animals, humans, and computers.

Maximizing collective intelligence relies on the ability ofan organization to accept and develop the Golden

Suggestion", which is any potentially useful input fromany member, or to aggregate the divergent views ofmany into one, best Golden Suggestion.

(adapted fromWikipedia)


4/38

2 heads are better than 1

~

Idiom

4


5/38

Millionaire Game

The aggregate beliefs of a group may help usdetermine the right answer.


6/38

Explaining Crowd Wisdom

(Image adapted from http://www.tx-systems.com/millionare )


7/38

Crowd Performance Explained:

Ability to Exclude

Four options (A D). Lets assume the correct answer is B.

Bert (and others in the crowd) knows Its not A or C. guesses

randomly between B (p=0.5) and D (p=0.5).

Cecilia knows Its not C or D. guesses randomly between A (p=0.5)and B (p=0.5).

Dora knows Its not D or A. guesses randomly between B (p=0.5) and

C (p=0.5)

Highest Probability: B (p = 0.5). All others have p = 0.5 / 3 = 0.1667.

B

A C D


8/38

How Does It Work? Insight

There is (must be) a mechanism to explain the

outcome (e.g., cannot predict coin flip).

People often do not know, but can exclude bad(unlikely) alternatives.

When all bad alternatives are excluded (byaggregation), the remaining good / best alternative(s)

receive higher probability.


9/38

Elements Required

for Collective Intelligence

Diversity of opinion.Each person should have privateinformation even if it's just an eccentric interpretation of theknown facts.

-each know different options are incorrect

Independence. People's opinions aren't determined by theopinions of those around them.-follow others option

Decentralization. People are able to specialize and draw on

local knowledge. (for particular knowledge)

Aggregation. Some mechanism exists for turning privatejudgments into a collective decision. Role of informationsystems!Tools to collect opinions e.g. social s/w


10/38

Jelly Bean Jar Experiment

How many beans are in the jar?

Average answers to generate a highly

accurate prediction outcome.


11/38

Law ofLarge Numbers?

N people predicting:

yi = a x + b + i

Given enough i, the terms i will cancel each other out,

thus resulting in an estimate close to the expected value. Wisdom of crowds

yi = ai xi + bi + i

Not regression to the mean, but variety of theories.


12/38

Business Value


13/38

Goldcorp Challenge

Rob McEwen, CEO of Goldcorp Inc., stood frustrated at the head of the boardroom table.

Without evidence of substantial new gold deposits, the mine seemed destined for closure,and Goldcorp was likely to go down with it.

Amazingly, a few weeks later geologists arrived back at Goldcorp headquarters full of pride

due to a remarkable discovery: Test drilling suggested rich deposits of new gold, as muchas thirty times the amount Goldcorp was currently mining!

How?

In March 2000, the "Goldcorp Challenge" was launched with a total of $575,000 in prizemoney available to participants with the best methods and estimates. Every bit ofinformation about the property was revealed on Goldcorp's Web site. More than one

thousand virtual prospectors from fifty countries started processing the data. Entries camefrom many sources, including graduate students, consultants, mathematicians, and militaryofficers. There were capabilities I had never seen before in the industry," says McEwen.The contestants had identified 110 targets on the property, 50 percent of which had notbeen previously identified by the company. Over 80 percent of the new targets yieldedsubstantial quantities of gold. In fact, since the challenge was initiated eight million ouncesof gold have been found. McEwen estimates the collaborative process shaved two to three

years off the exploration time.


14/38

Goldcorp Today


15/38

Andriod O/S

Newly born Mobile OS & market place, how can it catch up with Apple

Apps store in such a short period?


16/38

Threadless.com


17/38

Aggregation Mechanisms

Voting (Millionaire Game)

Averaging (Jelly beans)

Market or auction (prediction market)


18/38

Prediction Markets

http://www.hsx.com/http://www.simexchange.com/frontpage.php


19/38


20/38

Plane Makers Operational Risk

(with strategic impact)

Your company is a world leading

manufacturer of aircraft.

Your newest aircraft model is

revolutionary. It uses new

materials, and relies heavily on a

new supply chain, with significant

success responsibility given to first

and even second tier suppliers.

Will the aircraft be certified and

ready to fly (to be sold) by the end

of the year?


21/38

Prediction Market Logic

Express your beliefs in the future through bets, by buying

shares concerning the outcome of events.

In a prediction market, you buy a contract, which will payout in case your prediction was correct.


22/38

Basic Market Logic (1)

Make offer to buy Nshares concerning

event E at price EV

Event E

True $100/share

False $0/share

If I am willing to pay $75, for a share that will return $0 if I

am wrong and $100 if right, my implied belief of the event

likelihood is P = 0.75 (assuming risk neutrality).

EV = P x $100 + (1 P) x $0 = $75 P = EV/$100 = 0.75


23/38

Basic Market Logic (2)

Make offer to buy Nshares concerningevent E at price EV

Event E

True $100/share

False $0/share

The buyer does not need to know whether the price

reflects the actual percentage (e.g., 75%), but

should be able to assess whether the pricerepresents a good deal. Purchase of the event

(e.g., at $75) will change the price for future buyers

(more expensive). More shares bought will lead to a

higher price adjustment.


24/38

Box Office Success:

Hollywood StockExchange (HSX)

http://www.hsx.com/

The success of amovie in thefantasy stockexchange is apredictor of theactual moviesuccess.


25/38

Prediction Market (Auction)

Prediction markets arespeculative marketscreated for the purposeof making predictions.Assets are created

whose final cash valueis tied to a particularevent. The currentmarket prices can thenbe interpreted as

predictions of theprobability of the eventor the expected valueof the parameter.


26/38


27/38

The simexchange (video games)

27http://www.simexchange.com/frontpage.php


28/38

Voting (here Internet Search)

Popularity of movies inInternet search.

http://www.simexchange.com/frontpage.php


29/38

Once Exist: Predictify

Not a prediction market, but simply an aggregation of participantpredictions. http://www.crunchbase.com/company/predictify

http://techcrunch.com/tag/deadpool/


30/38


31/38

Wisdom of the Crowd Limitations


32/38

Madness of the Masses

1. Market bubbles (the trend is your friend)

lack of independence in decision making.

2. Groupthink or group polarizationlack of

independence and sharing of personal

knowledge against the common view.

3. Collectivism


33/38

Individual Expertise and Performance

Single point of authority and responsibility:

Flying a plane

Analysis paralysis: Flying a plane

Social loafing

Few people create anything noteworthy when

they share through social software.


34/38

Need for Large Collectives

Engagement Level

People

A small group of people will put in the majority of

effort, while the large majority will contribute little or

none. Thus we need a large enough base to assuresufficient overall participation.


35/38

Sourcing to the CollectiveWorlds Most

Active Users and Social Sites


36/38

Conclusions

Collective Wisdom works!

Source of Collective Wisdom

Predictions are reliable and possibly requirelittle effort / cost.

The collective is NOT always right.


37/38

IS3000 Wrap-UpEnd of Class


38/38

Account preparation

Second Life Virtual Tour

38

is3000 session vii collective wisdom

Documents