You don’t This has a lot to do with Meanwhile, you might well And the final answer is: Similar findings in other And markets are cultures. Not that the economic world But paradoxes abound. One But wait. Somebody else Greenspan has a point. People Again, the problem is overreaction. It’s a far cry from DANGER! Homo sapiens at
say "be unreasonable." The judge sentences the brutal assailant with
"You acted like an irrational animal."
the stock market, because if you are being strictly empirical on any given day
and in any given trade one of the traders is wrong and the other is right. But
they both leave work at the end of the day thinking they made the right decisions.
Only tomorrow will tell which was right. But both had their reasons. And the
whole system is predicated on the notion that people dealing with money do so
with a good measure of reason. "Rationality" is supposed to be the
basic sauce of the economic menu. When Alan Greenspan recited his "irrational
exuberance" poem he was expressing regret that people were paying too much
money for shares in often-nebulous companies that could well never produce any
earnings for shareholders, apart from the privileged insiders who could sell
out early. It turns out that (for the moment) he was right, because the primary
foci of exuberance were technology companies doing things and producing services
that either didn’t yet exist or that no one could understand or even see.
(What do Cisco and Oracle and Sun actually do?) Nevertheless, by the time this
is printed the whole picture could have gone back to last week’s version.
And then back. And then back.
ask, what about that famous human reason? Weren’t the same people doing
both things–buying expensive shares when they were going up and selling
them more cheaply when they went down? Did they have brain transplants mid-market?
Did the substances they ingested change, or did they go from high-protein food
to low? Were any more or any fewer widgets being produced one week to the next?
Were these the same supposedly rational, reasonable paragons of reflection and
analysis one day after another? Has dress-down Monday-to-Friday dumbed the financial
players down? Or did a different circus come into town without any public announcement?
not only humans are intensely subject to the pressures of other beings. A remarkable
biologist named Michael Chance of the University of Birmingham in England once
showed that rats in communal cages responded to experimental drugs in a communal
way. When they were in separate cages, the pattern of responses was much less
clustered in the middle of the curve of distribution. Even their inner physiology
was social. The culture affected their squishy bodily bits. Of course, the drug
testers badly wanted to know which doses had no effect at all or which croaked
the unfortunate little creatures. So they stopped using communal cages, even
though they were cheaper.
species about the importance of cultural patterns underline the connection between
humans and other animals in how difficult it is for individuals to withstand
the persuasive flurry of the actions of others. There is a deep socio-organic
reason solitary confinement is the worst punishment authorities can administer,
next to execution and torture. People want and need people, even presumably
antisocial and questionable ones such as fellow felons who have to be kept in
cages because they are considered too bad or dangerous to stir coffee at a diner
It’s no accident that colorful animal names are used to describe the two
most important moods of investors, bulls and bears. The rat-reason the stock
market goes up and down often with no crisp rationality is the same as that
one year Tommy Hilfiger clothes are the only ones youngsters absolutely need
and the following year are precisely the ones they don’t need and won’t,
won’t buy. At least in the case of Hilfiger stock, the declining sales
of logowear has driven down the price of Hilfiger shares because nothing, no
Internet or interactive magic or great fashion innovation in which people wear
eight Tommy t-shirts at once, will replace the economic magic of selling inexpensive
cottonwear more expensively because Tommy’s name is on it. But the situation
is much more confusing for such companies as Amazon.com (which appears to lose
money on every book it sells, though it is "building market share")
and other companies spending all their IPO money on expensive ads in The
Wall Street Journal and every glossy business magazine in town.
hasn’t changed. Countless books and some other products are bought on the
Net–for example the wonderful speakers for my computer I was able to get
in two minutes for $73 because a friend passed on his receipt from the Internet
vendor. Facilities such as e-mail have profoundly reduced costs and increased
efficiency in countless precincts of the world. Remember when travel agents
had to write out tickets by hand and changing a complicated itinerary was as
cumbersome as changing your name in Switzerland? When people used to enter your
bank deposit in a book you carried with you? Airplanes still fly through the
night with scribbled checks going from one Federal Reserve Bank to another but
we are promised that soon this will become unnecessary. And there are plentiful
other changes in economic life that will continue to produce decisive amelioration
in the amount of donkey work necessary to keep the world going, which will generate
more real choices about real things for more people. And these changes will
depend on electricity and, increasingly, light, which compared to other energy
sources don’t have to be carried around in barrels and don’t smell
when you use them. So there is promise and the reality of promise just around
of the ongoing complaints about stock market prosperity Chairman Alan has made
is that a rising stock market makes people feel wealthy and so they spend more.
That seems reasonable. Descartes would approve. I buy a share for 10 dollars
and sell it for 30 so I have 20 new dollars to spend on doilies, Haagen-Dazs
or flea-market pantaloons.
gave me their 30 dollars that they are now unable to spend on doilies, Haagen-Dazs
or recycled yellow garments. Don’t these trades balance each other out?
Why is Greenspan grumpy about my $20 but unsympathetic to my pantaloonless trading
partner? I have buying power, but he has less.
often overreact, a danger to any economy. When people have a bit of cash they
spend even more. When they get cut back, they cut back more. One of the few
times I was in a casino was in Estoril near Lisbon in Portugal and went for
fun with about a hundred to lose. One of the few games I could understand was
roulette so I bet my son’s birthday on red and won. I put my winnings into
a secure pocket and in a puzzled while bet the same way, and won again. I kept
that booty separate too and bet again and won once more. At that point a sharp-eyed
and elegant lady of the late evening approached me. She had obviously observed
that I was now a potential big spender, since I had contrived an interesting
amount of free money out of the universe. Her practical economic experience
must have been that I was likely to obey Greenspan’s Law and spend it,
presumably with her warm cooperation. Evidently as grumpy as Greenspan, I promptly
People can’t be trusted to get the facts right, as if they were reasonable,
sapient, sage, like that. The notion of perfectly efficient markets is an economic
product that has had a long shelf life but fortunately for economists doesn’t
come with a guarantee. Often enough to be troubling, even morally, markets are
like rat packs even though a great deal is at stake, for example nothing less
than the savings of the community. Sometimes it’s even more directly tragic.
A just-published Franco-American study of 191 HIV patients tells us that after
homo- or bisexual patients began protease inhibitor therapy, a significant number
increased their conduct of unprotected sex. Since they were now being treated
by competent and knowledgeable scientists therefore they were somehow exempt
from the dread laws of the disease they knew they had. Others are of course
put at risk. A national Centers for Disease Control study describes a rise in
rectal gonorrhea among gay men. This is little different from countless heterosexual
men who forgo condoms that prevent infection and conception. Or the countless
couples around the world who generate countless abortions because they miscalculate
either their fertility or their partners’ intentions or the underlying
mission of sex–reproduction.
the bedroom to the boardroom, but the same administrative organ, the brain,
is involved in both. The brain evolved to act, not to think, and to act in groups.
Entities like the stock market are composed of individuals taking their cues
from the overwhelming influence of groups. A few can be wholly independent-minded,
which may or may not work for them. But in the last analysis, when the value
of stocks goes up by 800 billion on Tuesday and down by 1400 billion on Friday
nothing real has changed except minds.
This has a lot to do with
Meanwhile, you might well
And the final answer is:
Similar findings in other
And markets are cultures.
Not that the economic world
But paradoxes abound. One
But wait. Somebody else
Greenspan has a point. People
Again, the problem is overreaction.
It’s a far cry from
DANGER! Homo sapiens at