Why A Few Box Office Hits Generate More Revenue Than Ever

The Wall Street Journal reports today on some interesting trends in the movie business.   According to this article by Ben Fritz, a small number of blockbuster hits accounts for a higher fraction of total box office receipts than in past years.   This year, the hits have included movies such as Finding Dory and Zootopia.  Fritz writes, "Increasingly, success in the movie business requires being one of the handful of most popular movies that draw a disproportionate amount of attention on social media and in the cultural zeitgeist. This year’s five most popular films account for 30% of the total domestic box office. At the end of last year that figure was 22%, a record at the time. The inevitable result is a smaller pool of moviegoers left to see everything else."  

Why the shift toward a larger share of revenue from the top movies of the year?   Fritz wrote an earlier column that may offer some clues.  In that piece, he noted that viewers tend to be getting their information from different sources these days.  In the past, people watched Siskel and Ebert (and others like them), and those experts shaped their movie-going decisions.  Today, people pay much more attention to what other viewers think.   What is the movie's Rotten Tomatoes score?  A bad score can doom a movie.   

Is this shift an example of the power of the wisdom of crowds?  Is it necessarily a good thing that we are using the crowd's wisdom to guide our movie-going decisions?   Interestingly, some research points to the pitfalls of the wisdom of crowds.  Jan Lorenz, Heiko Rauhut, Frank Schweitzer, and 

Dirk Helbing have studied this issue through experimental research.  They summarize their findings in the excerpt below:  

This wisdom of crowd effect was recently supported by examples from stock markets, political elections, and quiz shows [Surowiecki J (2004)The Wisdom of Crowds]. In contrast, we demonstrate by experimental evidence (N = 144) that even mild social influence can undermine the wisdom of crowd effect in simple estimation tasks. In the experiment, subjects could reconsider their response to factual questions after having received average or full information of the responses of other subjects. We compare subjects’ convergence of estimates and improvements in accuracy over five consecutive estimation periods with a control condition, in which no information about others’ responses was provided. Although groups are initially “wise,” knowledge about estimates of others narrows the diversity of opinions to such an extent that it undermines the wisdom of crowd effect in three different ways.

Interestingly, one other shift seems to be occurring in Hollywood from the production standpoint. More than ever, studios appear to be relying on franchises, sequels, and reboots.   Why is that happening?   One could argue that the studios are trying to enhance the probability of achieving a strong box office by bringing familiar characters to the screen.  That may be true to some extent, but there may be a limit to this positive impact.  At some point, they may saturate theaters with reboots and sequels, and customers may desire more originality.   

Amazing Evidence for the Wisdom of Crowds

Check out the amazing results of something called the "Good Judgment Project," profiled here by NPR.   Three psychologists - Philip Tetlock, Barbara Mellers and Don Moore - have created this project in collaboration with members of the government intelligence community.   Over the past three years, the researchers recruited roughly 3,000 people to make probability estimates about geopolitical issues such as the threat of a North Korean missile attack.   The NPR article profiles one such person, who happens to be a pharmacist living in Maryland.  She does not have any special expertise in international affairs.  She received some basic training in probability estimation, and then set out to respond to various questions posed to her by the researchers.  Her responses are among the most accurate of all 3,000 average citizens participating in the study.   She credits Google searches as her most useful tool for learning about an issue before making a prediction.  The NPR story indicates that, "According to one report, the predictions made by the Good Judgment Project are often better even than intelligence analysts with access to classified information, and many of the people involved in the project have been astonished by its success at making accurate predictions."  

What's going on here?  First, it clearly demonstrates the concept of the wisdom of crowds.  If you pool the collective intellect of a large, diverse group of people, you can often get the right answers more frequently than you can by relying on a few experts.  Of course, the wisdom of crowds only works if you have members of that large diverse group making independent judgments.  If people are influenced by others, then the wisdom of the crowd breaks down.  Second, as the story indicates, "If you want people to get better at making predictions, you need to keep score of how accurate their predictions turn out to be, so they have concrete feedback."  The researchers have done that throughout the study.  Finally, why do the experts often stumble?  Well, they are subject to many biases.  For instance, they often fall into the confirmation bias trap.  They may have more data at their disposal, but they often rely on the information that confirms their pre-existing views.   Moreover, the experts perhaps are not making independent judgements.  They may be influenced to a large degree by others in their work group or agency.  In that way, they may be subject to conformity pressures.  

Should You Trust the Expert?

On the Washington Post website, Darden Business School Professors Yael Grushka-Cockayne and Kenneth C. Lichtendahl Jr., ask the provocative question: Is it better to trust the best expert, or the average of a group of experts?  They examine this question in the context of economists forecasting economic growth for the Wall Street Journal.  They remind us about the concept of "the wisdom of crowds" described so eloquently by James Surowiecki of The New Yorker.  Then, they describe research by two Duke professors, Rick Larrick and Jack Soll:

Rick Larrick and Jack Soll, business professors at Duke University, have shown that when given a chance to do so, people often prefer to rely on experts. In laboratory experiments, they found that where experts disagreed, people would deem the “most able” among them and trust that individual’s judgment more.  Despite this perception, the average forecast often outperforms the best individual’s forecast. Such outperformance happens when forecasts bracket the true result. 

In their column for the Washington Post, the two Darden Professors examine past data from the Federal Reserve Bank of Philadelphia, an institution that surveys economists and relies on averaging of the individual forecasts.  They found that, "The crowd beat the expert in 63 percent of the 40 quarters. Not surprisingly, any two forecasters in the survey often bracketed the truth, bracketing on average 28 percent of the time."   

No surprises here... we have known about the wisdom of crowds for some time.  What is fascinating is that people tend to want to rely on the individual expert.  They prefer the expert over the crowd... absolutely the wrong strategy.  

Amazon, TV Pilots, and the Wisdom of Crowds

On Saturday, the Wall Street Journal reported on Amazon's attempt to develop original television programming (similar to Netflix's entry into this market).   Here's an excerpt from the article that describes how Amazon's efforts differ from the way the large television networks launch new shows:

A group of 14 "pilot" episodes had been posted on the company's website a month earlier, where they were viewed by more than one million people. After monitoring viewing patterns and comments on the site, Amazon produced about 20 pages of data detailing, among other things, how much a pilot was viewed, how many users gave it a 5-star rating and how many shared it with friends.Those findings helped the executives pick the first five pilots—winnowed down from an original pool of thousands of show ideas—that would be turned into series. The first will debut this month: "Alpha House," a political comedy about four politicians who live together, written by Doonesbury comic strip creator Garry Trudeau.

Amazon is taking advantage of the wisdom of crowds.   Traditional networks use focus groups to test out ideas for new shows.  Aren't thousands of reviews better than the responses from a small number of people in focus groups?  After all, focus groups can be very problematic, and not simply because of the small sample size.  Well... it depends.  The wisdom of crowds works when the responses from a larger, diverse audience are INDEPENDENT of one another.  In other words, the wisdom of crowds works when each individual response does not influence the response of others.  Does independence hold when it comes to online reviews, or does herd behavior take place?

Tim Harford of the Financial Times asked this question in a recent column.  He cites an interesting study that I blogged about earlier this fall.  According to the Wall Street Journal, researchers Muchnik, Aral, and Taylor found that, "positive online ratings can be strongly influenced by favorable ratings that have come before."  They discovered that initial positive ratings did create herd behavior.  Ratings that followed were more likely to be positive as a result of the influence of the initial evaluations.  According to Harford, "Positive comments tended to attract birds of a feather – a comment sent into the online world with a single positive vote attached was 30 per cent more likely to end up with at least 10 more positive votes than negatives."  Interestingly, initial negative ratings did not lead to similar herd behavior.  People who liked a product often chimed in to "counterbalance" an early, unusually negative review. 

Wisdom of Crowds vs. Herd Behavior

The Wall Street Journal reports this morning about a new study by scholars Lev Muchnik, Sinan Aral, and Sean Taylor.  The researchers examined, "positive online ratings can be strongly influenced by favorable ratings that have come before."  They found that initial positive ratings did create herd behavior.  Ratings that followed were more likely to be positive as a result of the influence of the initial evaluations.  However, initial negative ratings did not lead to similar herd behavior.  

What's the lesson here?  First, the wisdom of crowds depends upon the notion that each individual is making an independent judgment.  Unfortunately, human beings are subject to social influence.  We aren't as independent-minded as we would like to believe.  Second, social influence doesn't just affect us when we are in a group having a discussion.  It can affect us in virtual settings as well.   Third, social influence does not just affect us when we know the other people involved.  An anonymous individual can exhibit influence over us, as is the case in this study.   Well, those conclusions paint a rather bleak picture, don't they?  We have to be aware of the power of social influence, and we cannot pretend that we are somehow immune to such bias.  Herding behavior is everywhere. 

Wisdom and Foolishness of Crowds

Jonah Lehrer had a nice column in the weekend Wall Street Journal about the "wisdom of crowds" - the notion that we can get the right answers to tough problems by marshaling the collective intellect from a large group of people through a mechanism such as a voting process. Lehrer points to a study by Swiss scholars that suggests that crowds may not always be so smart.   Lehrer writes:


The experiment was straightforward. The researchers gathered 144 Swiss college students, sat them in isolated cubicles, and then asked them to answer various questions, such as the number of new immigrants living in Zurich. In many instances, the crowd proved correct. When asked about those immigrants, for instance, the median guess of the students was 10,000. The answer was 10,067.
The scientists then gave their subjects access to the guesses of the other members of the group. As a result, they were able to adjust their subsequent estimates based on the feedback of the crowd. The results were depressing. All of a sudden, the range of guesses dramatically narrowed; people were mindlessly imitating each other. Instead of canceling out their errors, they ended up magnifying their biases, which is why each round led to worse guesses. Although these subjects were far more confident that they were right—it's reassuring to know what other people think—this confidence was misplaced.

The results do not surprise at all.  The key to the wisdom of crowds, as James Suroweicki explained in his great book on the phenomenon, is that individuals must make independent judgments.   In a voting process, where individuals do not interact prior to rendering their judgment, we have independence.  However, in group and organization settings, social influence often plays a powerful role.   People are affected and even swayed by the judgments of others, and that often has a negative effect on the "wisdom" of the crowd.  I've always highlighted this fact by asking people whether they think the audience's accuracy on the game show Who Wants to be a Millionaire would go up or down if people had time to sit in a conference room and deliberate about the particular trivia question.   Because of social influence, I have always argued that accuracy would likely fall.  This simple experiment reinforces that conclusion.