The wisdom of crowds versus the madness of mobs: An evolutionary model of bias, polarization, and other challenges to collective intelligence

Abstract

Despite its success in financial markets and other domains, collective intelligence seems to fall short in many critical contexts, including infrequent but repeated financial crises, political polarization and deadlock, and various forms of bias and discrimination. We propose an evolutionary framework that provides fundamental insights into the role of heterogeneity and feedback loops in contributing to failures of collective intelligence. The framework is based on a binary choice model of behavior that affects fitness; hence, behavior is shaped by evolutionary dynamics and stochastic changes in environmental conditions. We derive collective intelligence as an emergent property of evolution in this framework, and also specify conditions under which it fails. We find that political polarization emerges in stochastic environments with reproductive risks that are correlated across individuals. Bias and discrimination emerge when individuals incorrectly attribute random adverse events to observable features that may have nothing to do with those events. In addition, path dependence and negative feedback in evolution may lead to even stronger biases and levels of discrimination, which are locally evolutionarily stable strategies. These results suggest potential policy interventions to prevent such failures by nudging the “madness of mobs” towards the “wisdom of crowds” through targeted shifts in the environment.

The evolution of forecasting for decision-making in dynamic environments

“…This can occur even in the absence of cognitive costs, when there is a risk of over-fitting predictions to noisy outcomes (Lo and Zhang, 2021). Similar models have also shown coexistence of multiple types (Lo and Zhang, 2022) and the breakdown of collective intelligence. This breakdown of collective intelligence is exemplified in interactions among rational traders and noise traders, who respond to hype rather than fundamentals.…”