framedsheep

Two books.

Extraordinary Popular Delusions and the Madness of Crowds - Charles Mackay.

The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations - James Surowiecki.

Maybe you’ve heard of them or even read them. Right now, it does not matter.

Mackay addresses ‘popular delusions’ or ‘mass hysteria’ - how following the herd can be a bad idea.

Surowiecki takes the position that the herd can make better [collective] decisions - under certain circumstances.

Mackay and Surowiecki seem at odds with each other. Mackay advises caution in following the herd. Surowiecki thinks that the herd can provide useful insights.

Now for nature to enter the fold.

Did you know that almost 2 million herbivores migrate in what is called “The Great Migration” - every year in Africa? The reason for undertaking such an epic journey is quite simply for food.

What I find fascinating is that whilst there certainly a wisdom of crowd behaviour in this mass migration; mainly that there is safety in numbers against the predators that have easy access to food due to the vast amount of choice available. There is also the madness of the crowd, because due to the nature of moving in a mass, events, such as an attack by predator, such as a leopard on an individual animal, can trigger panic and cause the death of many more.

Let me explain this a little more.

I saw a documentary on the mass migration of the wildebeest the other evening. They’d made their way across the plains in two groups. The first group was ‘greedy’ to cross the Mara River in order to get to the other side where the lush fields of green awaited them. They crossed the river once they reached it and due to a lack of adequate numbers, were easy pickings for the lions, leopards, cheetah’s and crocodiles. Good for the predators as they have easy pickings. Bad for the wildebeest and other animals involved in the first crossing as they don’t have the herd to protect them. [That is to say, the predators feel less ‘comfortable’ when confronted with a herd of hooves to collectively protect one another from their attacks.]

Now, when the bulk of the herd arrived to cross the river, they picked what seemed to be an ideal crossing point. Ideal, in the face that the crocodiles were also ready to leap in to action. It makes sense for both predator and prey. A shallow and narrow enough point in the river meant that it would take less time, require less effort and be a relatively safer option than a wider part of the river where more time in deeper water would mean greater risk to the crocodiles in particular.

The bulk of the herd started their crossing at a narrow and shallow [enough] point along the river. In they plunged and off they went. The crocodiles also fired up their routine, as did the other predators. It was business as usual. During this exodus though and on the day of shooting a specific part of the river, a leopard decided to attack after slinking alongside the river and pouncing at what was to be for the wildebeest, an inopportune moment. The action of the leopard caused panic. Initially the leopard missed the target it was after, however, due to unwittingly inciting panic, the entire head of the river crossing herd, decided to move off to another location to cross the river. This they did, however, it was at their own folly.

The new location seemed fine and fair enough. Similar optimum crossing conditions as before, however there was a problem. The river bank on the opposite side of the crossing point was too steep and had no easy access route for the wildebeest to successfully cross the river to the other side. The bank was just too steep. In fact it was a precipice, which in turn, made it a cul-de-sac. A dead end. Quite literally, as the wildebeest stormed across the river and started to reach the other side, they came to face a space problem. There was not enough on the other side of the river to allow for their numbers to gain an adequate footing and therefore, perhaps, figure out another way to overcome the river bank that they could not get over. The knock-on effect of this was that soon the river bank was overpopulated and the animals were starting to trample each other, either back in to the water or in to the mud, where many of them were injured and later died. Added to this, the crocodiles did not have to do very much in the way of exposing themselves to danger, because they just had to wait for the animals to give up or die in the process of attempting to cross the river. The other predators also had an easier time, because they too could take advantage of the sad demise of the wildebeest because of the herd mentality that was in operation.

Whilst the crowd had been successful in detecting a safe enough path over the river, the crowd also was responsible for the death of many of their own when they hit the panic button due to a single event that disrupted the plan and changed the fate and fortune of the herd. From the perspective of the predators, this was a great decision. Less risk and more food. Winning!

So where does this lead us?

The end result. The wildebeest & co. managed to cross the river in great enough numbers to ensure the survival of their species by getting to the optimum grazing grounds. As a group they made a successful crossing. Some of them died in the process, not necessarily due to the predators lurking about, but due to a weakness that seems to be inherent in mass, crowd or herd behaviour. We might call this “The Lemming Effect” - with excuses to all lemming fans across the globe. On the whole though, the deaths or losses to the herd did not seem to cause any serious threat to the future of the wildebeest - and we’ll guess other animals crossing as well, too. Every creature can make a mistake. Even wild animals. Humans, certainly too.

The predators also scored a success. Regardless of whether or not the wildebeest took a wrong turn or made a mistake in deciding their path across the river and over the river bank, they still managed to get what they wanted. Food. Food for themselves and food for their own kind, as well as, food for their young. On the whole, every participant gained, if you consider the collective good of all. Risk and reward were factored in to both camps of prey and predator, with reward seeming to come out on top. This, in the face that there were injuries and deaths - on both sides - the show still went on going.

Wisdom and Madness worked together to form the end result.

What however is the relevance of the migration of the wildebeest and the ‘migration’ of human beings? I am not talking about the physical migration of human beings here, but in more specific terms, the migration of world finance. In yet a more specific reference, I am aiming at the movements of stock markets.

At this moment in time there is mention of the “credit crisis” and how it is going to have adverse effects - namely - recession. Global recession that is.

Stock markets go up and down all the time. It is the nature of the stock market to do so. This is called a cycle. It is a pattern. People make money by placing bets on the outcomes of various businesses and either win or lose. In certain periods of time, there is a tendency for these predictions to be accurate and at other times, not. The degree of prediction correctness rests within the markets and the players who influence the markets. Super simplified, I know.

The point though is to see if we can draw a parallel between the wisdom and madness of crowd behaviour to see if whether or not, like the example of the mass migration of the wildebeest, whether or not there are any correlations towards helping us to find some learnings and thereby help us lessen the blows of market conditions when things go sour. This might seem nice in theory. In practice though, would it make any difference if we did in fact find something useful to learn from the above?

I somehow doubt it. Sadly enough, it is my honest belief that even if we were armed with some startling insights and could indeed educate the individuals in a herd, not to get spooked by the actions of an individual or even small groups of individuals, because they did not have correct or accurate information and thereby cause the demise of many others, who haplessly trust and follow the lead - then maybe better alternative choices would be made. The predators would get their full. Take that for granted. The herd though will lose fewer numbers. We hope. Then again, and perhaps to be a little controversial here, what if we don’t really concern ourselves with the fact that there can and will be ‘collateral damage’ along the way, and instead of looking out for those outside of our ‘group of concern’ - we just - focus on those who matter to us most and consider ourselves lucky, fortunate or even wise enough to know, when to join in with the madness and wisdom of the crowd and when to rely on our own individual responsibility to make judgments when we should move in another direction, taking an alternative course an avoiding the trampled down or eaten up fate of others?

This seems to make sense to me. Just how though, is this going to be possible? Is experience going to teach us when to make a move or when not to make a move or make an alternative move? Will luck play a role? Insider or expertise knowledge? Perhaps the smart solution is to establish a threshold of ‘necessary awareness’ and measure the necessity of this knowledge in combination with present conditions, future predictions and personal goals.

An interesting topic in my opinion and perhaps one worthy of some future exploration at a later point in time. For now though, this very basic introductory article, stemming out of a documentary and the recent movements of the stock market, make this an interesting subject topic to discuss. Do you have any thoughts on this? If so, let’s chat!