When the space shuttle Challenger exploded shortly after take-off on January 28, 1986 who would have known that, out of the 4 publically listed contractors to the shuttle, the Dow Jones market singled out the party responsible prior to any investigation into the infamous O-ring that caused the explosion? This is one of the many case studies and examples that James Surowiecki lists in support of his premise in The Wisdom of Crowds (Buy it at Amazon.com or Kalahari.net):

That – given the conditions of diversity of opinion, independence, decentralisation and aggregation – a group of people will make a collective judgement more accurate that the best judgement of the single brightest individual in the group.
This theory has found application in locating sunken submarines, on how Google’s PageRank algorithm searches better than any other search engine, how the Hollywood Stock Exchange predicts box office hits and Oscar winner and how it is that flocks of birds and schools of fish fly/swim in formation.
How does diversity help in decision making processes? Well “it actually adds perspectives that would otherwise be absent and because it takes away, or at least weakens, some of the destructive characteristics of group decision making. Diversity also then makes it easier for individuals to say what they really think (this is independence).
Next in the wisdom process is decentralisation, that if you set a crowd of self-interested, independent people to work on a problem their collective solution is likely to be better than the one you would come up with. But this only works if there is a means of aggregating all the information in the system for everyone (blogs, wikis?).
Surowiecki also then applies the theory to different types of problems, which he calls cognition (which is the best company to invest in?), coordination (how is it that pedestrians can move surprisingly fast without colliding) and cooperation problems, (in a free market that espouses greed and self-interest, how is it that people generally operate on trust?).
If there is one reason why I like the book, besides its theory and application to innovation and diversity, is that Surowiecki has provided thought-provoking story after story in substantiation of his theory. The stories especially useful for presentations and facilitations around diversity.
I also believe that this book is a must read for everyone within the TmTd.biz network as it has some thought provoking content regarding the coordination and cooperation of people within virtual environments. Although not explcicit, Surowiecki’s thoughts raise questions of how, in a virtual envirnment, you aggregate information such that enough people have sufficient access to the right information.
Some useful links:
Wikipedia’s Wisdom
Wisdom of Crowds Website