Instead of having a CEO choose the company's strategy, why not have employees participate in an internal market to set the course for a firm? Companies have been extremely reluctant to do this, Surowiecki says, but a few pilot projects in some firms indicate that the technique could be pretty handy. A test run by the economists Charles Plott and Kay-Yut Chen at Hewlett Packard gave a small group of employees the chance to buy and sell shares in a market meant to forecast long-term printer sales at the company. The market's predictions outperformed the company's forecasts 75 percent of the time. At Innocentive, a spinoff of the drug company Eli Lilly, employees used an experimental market to predict which three of six new drugs were likely to be approved by the FDA -- and they picked the correct three, an extremely valuable trick in the high-stakes pharmaceutical world. Can a CEO who makes a hundred million dollars each year do that?

Surowiecki also has kind words for the Policy Analysis Market, the Defense Department project designed to use a market to predict threats in the Middle East. The project, which was roundly skewered as "offensive," "harebrained" and "morally wrong" when it became public in the summer of 2003, was quickly abandoned by the government.

Surowiecki believes it was a bad idea to dump the DoD project. These days, the evidence abounds that the U.S. intelligence services have little insight into the Middle East. The problem is not just that we don't know what's going on in the region, but that what we think we know is sometimes way off. What the American public thought it knew about Saddam Hussein's weapons capabilities, for instance, seems now to have not been the product of actual intelligence-gathering efforts but instead the result of spin, hype, bureaucratic infighting, a less-than-aggressive press corps, and baldfaced lies. A decision market might have mitigated such problems.

"Since traders in a market have no incentive other than making the right predictions -- that is, there are no bureaucratic or political factors influencing their decisions," Surowiecki writes, "they are more likely to offer honest evaluations instead of tailoring their opinions to fit the political climate or satisfy institutional demands." In the case of Iraq, those who knew about Saddam's actual weapons capabilities, or who were at the very least skeptical of the Bush administration's threats, might have anonymously bet against the government's claims in the PAM market. The public would then have had reason to be skeptical of the White House's claims.

It's true, of course, that markets can also get things wrong, and Surowiecki doesn't ignore this. Indeed, one of the most engaging sections of his book is an examination of what caused the breakdown of the stock market during the technology bubble. Surowiecki points to a number of reasons the market performed so badly during the boom, but his main point is that at some point in the late 1990s, players in the market lost their independence from one another. Fed by a constant diet of stock-boosting news on CNBC, investors became single-minded, as each person thoughtlessly did what he believed everyone else was doing -- buying tech stocks. The result was a seemingly endless upward spiral in stock prices, followed, suddenly, by a seemingly endless downward spiral.

Alas, there are few real solutions to avoiding bubbles in financial markets, Surowiecki explains. If you're stuck in a market in which prices keep rising for no reason, what are you going to do -- get out? If you did that, you'd lose the chance to make a killing. But if you stayed in the market, you'd risk being caught up in the crash. All you can do is hold your breath and hope for the best.

Yet despite the spasms of irrationality into which markets sometimes sink, we'd probably be better off casting our lot with groups than with individuals. Yes, stock markets sometimes do dumb things, but most of the time they're pretty smart. Individuals, on the other hands, sometimes do smart things. But it's what they do most of the time that should worry us.

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