Entries Published On March, 2019
This is the second in a series of articles where we examine the macro-level trends that support the thesis of our business.
The wisdom of crowds is a well-studied business phenomenon chronicled in a book by James Surowiecki. He makes the case that, under the right circumstances, groups are remarkably intelligent and outperform the smartest individuals in the group. AngelMD believes that our digital network is the best mechanism for identifying the best healthcare innovations.
Not everyone agrees in the power of the crowd. Charles Mackay published a book Extraordinary Popular Delusions and the Madness of Crowds. The book could serve as in strong indictment of Twitter in spite of it being published in 1841. The fact is that groups, when properly organized, can perform at an extraordinary level.
There are a number of examples where the crowd’s wisdom outperformed smart individuals. In 1968, Naval Officer John Carven was responsible determining what happened to the US submarine Scorpion. The vessel disappeared on its way back to Newport News, VA from a tour in the North Atlantic. The Navy started a search in an area 20 miles wide and in water many thousands of feet deep based upon the recommendation of a few experts.
After a fruitless search, Carven assembled a team with wide knowledge including mathematicians, submarine specialists, and salvage experts. He did not allow the group to meet together but rather to provide their best estimate of where the submarine might be based upon limited available knowledge. Carven utilized Baye’s theorem (probability of an event, based on prior knowledge of conditions that might be related to the event) to process the individual recommendations. The group pinpointed the location of the sub within 220 yards of where it was located. No individual in the group had performed to the collective wisdom of the crowd.
A fun example is the old TV show Who Wants to be a Millionaire. A contestant was asked multiple choice questions that got progressively more difficult. If stumped, the contestant could have two answers removed (odds now 50%), call a friend who they had designated as the smartest person they knew, or ask the studio audience. Over time, experts provided the right answer 65% of the time while the audience picked the right answer 91% of the time. Contestants soon learned that the crowd was the best choice for the most challenging questions.
There have been a number of research projects conducted by experts that have validated the power of the crowd. Each of these studies identified that groups performing independently of each other came to the best answer. We also see this played out daily through sporting lines generated by casinos in Las Vegas. The bookmakers publish the initial line for the game and the crowd can then move the line based upon their “individual” wisdom. In the end, the casinos make money because the line evenly divides individual wisdom between winners and losers.
James Surowiecki determined that there are four required elements to form a wise crowd:
- Diversity of Opinion – Each person should have private information…even if it is just their interpretation of the faces.
- Independence – People’s opinions aren’t influenced by the opinions of others in the group.
- Decentralization – People are able to specialize and draw upon local knowledge.
- Aggregation – Some mechanism exists for turning private judgements into a collective decision.
At AngelMD, we believe in the power of the AngelMD digital network. Our model for evaluating startups closely follows Surowiecki’s recommendations.
- Diversity of Opinion – AngelMD scores startups in the network by individually polling physicians and experts electronically.
- Independence – The scores from AngelMD members are captured independently of one another.
- Decentralization – The AngelMD members that score companies are geographically disperse and represent a number of healthcare delivery mechanisms including teaching hospitals, community hospitals and physician practices.
- Aggregation – The AngelMD Metis scoring engine provides the mechanism for turning our member judgements into a collective decision.
AngelMD believes that our network is the best platform to source, score, and finance the best healthcare startups. The most critical role, however, may be the function that our network plays in advising the companies after the investment event. Whether it be providing product feedback, tuning the go-to-market model, or unlocking access to healthcare buyers our members are actively involved in helping startups achieve the best possible outcome for patients, investors and startups.
In our next article, we will discuss the proven power of digital networks and multi-sided markets. Ready to get started? Become a member of AngelMD and impact the trajectory of healthcare by scoring startups in our network.
Recommended reading: The Wisdom of Crowds by James Surowiecki which served as the basis for this article.