The Wisdom of the Crowds (2004) by James Surowiecki is a book so well known that reading the book can give a sensation of deja vu. The book describes how many people making independent choices can make predictions and perform many calculations dramatically better than individuals or experts can. The book goes over how independent, bottom up decision making often has the edge on a top down style.
Surowiecki, who is the financial columnist for the New Yorker, goes over some remarkable successes of the wisdom of the crowds in betting, guessing the number of items in a container, locating sunk submarines and of course, in allocating resources.
There is also a really interesting chapter on how small committees are often the opposite of a wise crowd because people don’t really make their own decisions and then compare and add knowledge but instead simply agree with the most influential or talkative member of the group.
Surowiecki puts forward the idea that prediction markets are a very good idea and should be used for intelligence gathering. The betting markets that do very well for political prediction are also briefly discussed.
Some of the points are obvious but it’s still worth going over them. The book is written very well and it’s a fun and informative read.