Smart people find it difficult to trust the masses. The philosopher Martin Heidegger, for example, disillusioned his lover and pupil Hannah Arendt with his embrace of the Nazis; Heidegger distrusted democracy for allowing the common man to choose his leaders and loathed communism for presuming that the unwashed masses were the leaders. Power, he felt, was best left to those few who could understand and apply the ideals of leadership. How unfortunate for him that the jackbooted Nazis were not the idealists he had supposed they would be.

Here in our great democracy, those who fancy themselves sophisticated cannot abide leaving important decisions to the multitudes who follow submental dreck like celebrity trials and Joe Millionaire. But if, as H.L. Mencken postulated, no one ever went broke underestimating the intelligence of the American people, then James Surowiecki counters that plenty have gone broke overestimating the intelligence of gurus and geniuses. In his clever and surprising new book, Surowieckió the money writer for the New Yorkeró credits the mysterious ingenuity of decentralized thought with everything from promoting worldwide democracy to predicting future events with eerily accurate power.

Surowiecki identifies four factors that denote a wise crowd: "diversity of opinion (each person should have some private information, even if it's just an eccentric interpretation of the known facts), independence (people's opinions are not determined by the opinions of those around them), decentralization (people are able to specialize and draw on local knowledge), and aggregation (some mechanism exists for turning private judgments into a collective decision)." He's writing not about crass mob behavior but about the elegance of community.

While elegance is not always associated with economic theory, Surowiecki links the two in a series of persuasive studies. One classic experiment asks students to guess the number of jelly beans in a jar. Of the 56 students in one professor's class, only one correctly guessed 850, but the group estimateó the average of all the picksó was a remarkable 871. In another study, physicist Norman Johnson built a complex maze and turned his students loose. After they'd been through it once, he counted their steps from entrance to exit. The group's "collective solution" was exactly nine steps, the absolute fewest possible. Time and again, the group reveals itself as strong as its strongest link, and often even stronger, producing solutions that are even better than the best one put forward by any one of the group's individuals.

Surowiecki makes a clever case about the dubiousness of experts, arguing that they often know too much to be of use in the real world; W.G. Chase called expertise "spectacularly narrow." He cites the example of an expert and a novice looking at a chessboard. If a game is in progress, the expert can re-create the game and explain exactly how each player opened. The novice cannot see the game's past or future. But if the pieces are arranged randomly, the amateur can describe the board, while the expert sees only chaos.

The book's most fascinatingó and timelyó section discusses last year's firestorm over pam (Policy Analysis Market), an effort by the Pentagon to forecast events in the Middle East by using a futures-based market, which would let individuals wager on the likelihood of the US being struck by a particular type of terroristic attack. If lots of people began betting on, say, "sarin attack within one year," then the authorities could decide to pay greater attention to that possibility, in the exact same way that stock investors pay attention to what the "smart money" is doing. In a nasty bit of partisan politicking, Democratic senators Byron Dorgan and Ron Wyden helped kill pam in July 2003, and Surowiecki writes here (and more passionately in an article for Slate) about the real opportunity that was lost. In the shadow of September 11, pam could have provided the kind of decentralized clearinghouse for both local and global intelligence that everyone seems to agree was badly needed. It may seem trifling or in bad taste to wager on Arafat's demise or on the next al Qaeda attack, but betting on the future, Surowiecki stresses, is the core of respectable, staid industries like life insurance. Without the futures market, the orange juice on your table might not be affordable. Allowing wise crowds to make assessments could have had lasting impact on American security. The fact that pam succumbed to opportunistic preening proves that collective decision makingó which gets bums like Dorgan and Wyden electedó has its limitations.

The Wisdom of Crowds is at its best when deploying quotations and examples from sources, and for a tome about collective wisdom, this isn't such a bad thing. Memorably, Jeff Bezos likens the Internet boom to the explosion of life during the Cambrian periodó an exquisite metaphor for the great mess of business evolution, as well as for the notion that there is a collective force that shapes the parameters of survival. There's also a neat explanation of how the American economy blossomed because an inventor, William Sellers, persuaded the Pennsylvania Railroad and the US Navy to adopt his standardized screw, which could be mass-produced.

There's even a terrific analogy between a human ultimatum game and a study of female capuchin monkeys. To wit: Two people are paired, and one of them is given a sum of money to divide in whatever proportion he chooses. The recipient, across all cultural divides, rejects any offer he feels is unfairly divided, preferring to walk away with nothing. Capuchin monkeys were given cucumber slices as an exchange for a pebble, but a few were given highly prized grapes for no reason at all. The monkeys given cucumbers began to refuse them once they observed a select few rewarded without apparent cause.

Less impressive are some of the financial examples Surowiecki cites. His point about passively managed S & P 500 Index funds outperforming some 70 percent of actively managed funds is well known, but it's subtly incorrect. The stocks that make up the S & P 500 are not chosen by some sort of public referendumó they're selected by a secretive cabal within the Standard & Poor's corporation. The better point might be that the guys in that room are good stock pickersó exactly the opposite of the book's core point. Another minor quibble: His football observation about the choice faced regarding whether to kick on fourth down versus trying for a first down is horribly convoluted, even to this longtime fan of coaches who "go for it."

Surowiecki's tone of surprise throughoutó gee, these slobs really do deserve to live and breatheó is endearing, if a bit patronizing. Perhaps New Yorker readers are still amazed at how well the free market works, but anyone who uses Priceline to save a few bucks on Father's Day airfare will not be. However, the originality and sheer number of demonstrations of the impressive power of collective thinking provided here are fascinating, and oddly comforting. They give cover to us Joe Millionaire fans who have felt all along that we were actually contributing meaningfully to the upholding of a great democracy.

Ken Kurson writes on finances for Esquire.