Julia Gillard will be replaced as Australia's prime minister in 2012 - according to the wisdom of the masses
In his book “The Wisdom of Crowds”, James Surowiecki makes an interesting case that if you want to make a correct decision then large numbers of ordinary people can provide better advice than a small number of experts.
Surowiecki claims that if you ask a large enough sample of diverse, independent people to make a prediction or estimate a probability, and then average those estimates, the errors each individual makes in coming up with an answer will cancel themselves out. Each persons guess has two components: information and error (or signal and noise). The process of averaging tends to cancel out the errors, leaving the information.
On the other hand, small groups of experts tend not to have a diversity of opinion and nor have they necessarily come to their opinions independently. Experts are often vulnerable to “groupthink”. This was evident in the period before the global financial crisis – which 99% of economists failed to predict. Thus, it is hard for business and government planners to manage risks effectively or efficiently.
The opinions of the masses are important in another way, not mentioned by Surowiecki. They provide insight into what consumers are expecting to happen. The opinions will be a factor influencing their behaviour. They will also indicate perceived risks which they will expect governments and businesses to address.
Foreseechange has been researching the wisdom of the masses concept since 2005. We prefer the term “masses” to Surowiecki’s “crowds” because the latter implies a group of people in close proximity and, therefore, not as diverse and independent as the masses.
We do not claim that the wisdom of the masses provides accurate forecasts. Rather we have found that the expectations of the masses can be interpreted to predict behaviour. For example, in our 2005 study, we found a high likelihood attached to increases in petrol prices and to clear signs of global warming. On the basis of this, we predicted a “train change” – in particular an increase in public transport patronage. This has certainly happened, as the long-term downwards trend in public transport usage has been clearly reversed and increases of up to 10% per year have been experienced since. There has also been an upsurge in bicycle usage. Sales of new large passenger cars (the segment which includes locally made Commodore and Falcon) have fallen from 195,000 on 2004 to 102,000 in 2010 – while the overall market has risen from 955,000 to 1,036,000. Large car sales have fallen again to October in 2011 and will be lucky to reach 80,000 for the year.
The wisdom of the masses can be quite accurate for political events. For example, in late 2005 we asked about the likelihood that John Howard would stand down as prime minister and the wisdom of the masses estimate was 40% - reasonably accurate much to the chagrin of Peter Costello. In October 2007, we asked about the chances that John Howard would still be prime minister in 2008 and the wisdom of the masses estimate was 36% - again reasonably accurate.
So Julia Gillard should be worried, because our November 2011 survey found a perceived likelihood of 63% that she will be replaced in 2012. Of course, that may focus voters minds on who the replacement might be - so perhaps this perception could actually count in Julia's favour!
The other events for which a perceived likelihood was measured were:
The results suggest another challenging year for retailers and that economic policy managers also have challenges to inspire confidence in the economy and their ability to manage it. Climate scientists also have some work to do to shore up their credibility!
The Wisdom of the Masses for 2012 report is available at www.foreseechange.com.au.
UPDATE June 2013
Julia Gillard was replaced as PM on 26 June 2013 - by Kevin Rudd, who she deposed in 2010. It may have happened a few months later than expected but it happened before an election which Gillard was almost certain to lose. The wisdom of the masses has been consistently accurate at predicting political outcomes.