In 2009, illusionist Derren Brown performed the miraculous feat of predicting the lottery numbers (after they drawn).
He claimed this was the wisdom of the crowd. He collected a group of 24 people together, asked them to predict the numbers and averaged the answers. Magic.
Of course, wisdom of the crowds doesn't work like this. The aggregated knowledge of clueless people provides no further insight on a topic.
Compare this with a community determing the value of each german footballer (soccer player). The values closely reflected actual transfer fees. Each individual had some expertise, shared it, and the average came close to the real result (so close, that actual transfer fees are based upon the community predicted values).
Or look at Intrade. Intrade proved more accurate than any individual expert in predicting both the 2004, 2008 elections. In fact, it proved so accurate that it attracted media coverage during 2012 – at which point large, suspicious, bets were made to favourably skew election coverage.
In topics where everyone has a small piece of knowledge/expertise, wisdom of the crowds works well. Wikipedia articles are now more accurate (and updated) than Britannica's.
Averaging out the sum of knowledge by all contributions will lead to more accurate results than those from experts. In topics where members have no ability to make accurate forecasts or no knowledge on the topic, this is a bad idea.
If you want to learn more, sign up to the Virtual Community Summit in London from Feb 20 – 21.
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