A good decision is not made in one go
The best decisions are made on the basis of the average of various estimates: this has been confirmed by the research of Dennie van Dolder and Martijn van den Assem, scientists at VU Amsterdam. Using data from Holland Casino promotional campaigns, they have researched whether it is true that when people make estimates, the average of their estimates is relatively close to reality. The results of the research are being published today in Nature Human Behaviour.
12/11/2017 | 5:00 PM
Wisdom of crowds
More than a century ago, the famous British scientist Sir Francis Galton researched estimation contests that were very similar to the estimation contest at Holland Casino. At a cattle market, visitors could estimate the slaughter weight of an exhibited ox. Galton examined the estimates made by people and found that, surprisingly, the average estimate differed little from reality. The principle that averaging multiple estimates provides a relatively accurate outcome—often better than most underlying estimates and sometimes even better than all—has come to be known as the Wisdom of Crowds principle. It is an important principle because accurate estimates are crucial for making good decisions.
Wisdom of inner crowds
Also interesting and important is the analysis of the estimates from people who participated multiple times. Recently, researchers have suggested that it is also useful to average estimates that come from the same person. Van Dolder and Van den Assem believe that averages from the same person do indeed work, and that therefore ‘wisdom of inner crowds’ also exists.
This is an attractive idea because it is often easier to make multiple estimates yourself than to involve various other people. For issues that require a high degree of specialised expertise and for private matters, decision-makers, in any case, have to rely on themselves to make the decision. Which holiday will you book? Will you stay with your partner or not? And will you or will you not move to a particular city? The research suggests that, to reach a good decision, it is better to think about it at different times of the day and with a few nights of sleep between each time.
However, in comparison, the accuracy improves more dramatically when you take the average of estimates from different people: the average of a large number of estimates from the same person is hardly ever better than the average of two estimates from different people. Van Dolder: “For the quality of estimates, it is therefore better if two people are both engaged in the same two projects than when each focuses entirely on an individual project.”
Two heads really are better than than one, and for good decision making, taking the average of the estimates of various people remains the best approach.
Read the entire article. Nature Human Behaviour is a new, broadly-orientated, top scientific journal under the flagship publication Nature.
Collaboration Nobel Prize winner Richard Thaler Martijn van den Assem and Dennie van Dolder have collaborated in their research with Nobel Prize winner in Economics Richard Thaler. During the Micheal Damm Lecture on Wednesday 13 December Van den Assem will speak on the academic performances Thaler made in the field of behavioural economics and what it's like to work with a Nobel Prize winner. More information is found on the SBE website.