The Costs of Collective Wisdom

The ability to accurately evaluate strategic opportunities provides organizations with a significant source of advantage. While organizations typically evaluate opportunities collectively, to harness collective wisdom they must decide how to decide – i.e., how to aggregate individual judgments using some form of group decision rule, such as majority voting, averaging opinions or delegating to experts. We advance a contingency approach to the information aggregation problem that explains how the performance of group decision rules varies according to how an organization allocates scarce cognitive and social resources when assessing opportunities. Using a computational model, we demonstrate that which rule is best depends on an organization’s expenditure on improving the accuracy of individuals’ evaluations (accuracy costs) and on involving individuals in collective evaluation (inclusion costs). Our results reveal how the cognitive and social costs of collective wisdom shape opportunity evaluation. We discuss the implications for designing the architecture of opportunity evaluation and for the emerging literature concerning how resources and dynamic capabilities affect the evaluation of strategic opportunities.