Which is better: efficient markets or efficient communities?

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In my humble opinion


In my post last week, I talked about what I see as inefficiencies in the system design of many crowdsourcing projects. Today, I thought I'd stick with the inefficiency theme after reading a blog by Umair Haque entitled The Efficient Community Hypothesis (thanks to Rebecca Fernandez for pointing it out).

In this post, Haque makes the case that the efficient market hypothesis often talked about by finance types should be replaced by something he calls the efficient community hypothesis.

From the post (all emphasis mine):

"...where efficient markets incorporate "all known information," efficient communities incorporate "the best known information." An efficient market is a tool for sorting the largest quantity of info. But an efficient community is a tool for sorting the highest quality info."

He continues:

"The point of communities is, when you think about it, to ensure that people and organizations don't just get any old information — but the right, the best information. They should filter out bad, inaccurate information from unreliable sources and replace it with its opposite. They are, in short, the economic mirror image of markets: where efficient markets ensure information efficiency, efficient communities ensure information productivity."

Take a few minutes and go read the full post. It certainly got me thinking about how a more community-focused approach could help redesign our financial system to avoid repeating the mistakes of the past few years.


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Chris Grams is the Head of Marketing at Tidelift and author of The Ad-Free Brand: Secrets to Building Successful Brands in a Digital World. Twitter LinkedIn Email: chris(at)tidelift.com


The difference between engaged communities and general "crowdsourced" ideas is the ultimate value of the outcome to your users.

This article about the Crowdsourced Barbie Doll was another great example of where community-sourcing and crowd-sourcing diverge:

Here's the problem I'm having with efficient communities: as the communities get smaller they may get more efficient but they also become more inbred; they influence each other so the ideas lack diversity without the richness of close collaboration. One important contribution and perhaps the only advantage of a crowd is diversity. In my opinion it is why the Flickr photo sharing site is better than iStock photo - Flickr is more diverse even though iStock is more efficient.

On the balance are two groups: the efficiency of a small collaborative team of experts on the one hand and a large diverse disconnected group on the other. Picking a middle may - probably will - compromise quality of outcome.

Just a thought.

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