Everyone Looking Sideways: Comments on Markets, Mimetics and the Madness of Crowds
Back in May I posted the following to my BEEW Spill feed...
2025-05-01
Loved this quote from Jordan Peterson's recent conversation with Peter Thiel:"When you stop looking up, you start looking around. And when you look around too much, it's not a wisdom of crowds, it's a madness of crowds."
-Peter Thiel
Thiel was referencing his late mentor René Girard's work on desire. We don't invent our desires, we imitate them. Without some belief in a divine order, a spiritual truth, or an ideal beyond material reality, we don't become more rational, we become more mimetic. We look sideways to each other for meaning, and what follows isn't wisdom, but envy, rivalry, hysteria. The madness of crowds.
I completely agree with this line of thinking. It's always seemed so obvious to me. You see it everywhere you look. But what you also see is that most people don't see it. Why?
Many years ago I came across Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds. The book, a sweeping history of episodes where collective behavior spiraled into irrationality, greed, or superstition, had a huge impact on me. Mackay's thesis is that when we humans gather together in large numbers, we are prone to contagion and mass delusion — ideas and behaviors that spread like epidemics, often with destructive results.
So why, I'm wondering, does the phrase wisdom of crowds have so much more cultural traction than madness of crowds?
I think it’s because the idea flatters us. It reassures us that, in the aggregate, we are rational. He or she or they may be biased, ignorant, or emotional, but collectively—the poll, the jury, the market—we filter through the noise and only signal remains. We soothe ourselves with the comforting, dangerously simplistic belief that many minds converging on a single problem will eventually land on the truth.
And sometimes the crowd really does get it right. In controlled settings, with independent judgments and clear feedback loops, crowds can and often do outperform experts. James Surowiecki popularized this view in his book, The Wisdom of Crowds, where he showed that a large enough crowd guessing the weight of an ox at a county fair often comes astonishingly close to the right number.
(Sidebar: What then, I wonder, happened in 3rd grade when none of us came anywhere close to guessing the number of rice grains in the large jar on Mrs. Albora's desk? I can't tell you how badly I wanted that Hershey's bar.)
Mackay's point, and Girard's, and mine, is that independence rarely holds. It's all fun 'n games until bla, bla, bla… Once people start looking at each other instead of at reality, desire and belief become contagious. Once the crowd ceases to be a set of separate judgments, it becomes a hall of mirrors. That's when "wisdom" flips to "madness."
You don't have to go all the way back to tulip mania or the South Sea Bubble to see it. Just look at the attack on the U.S. Capitol on January 6th. Or, at the mimicry and delusion that sent GameStop to the moon overnight. Or, for a more timely example, at today's markets.
You’ve got people strutting around, brimming with confidence over their fattened portfolios, on the strength and momentum of our economy. Huh? Meanwhile the Oracle of Omaha and other investing legends have retreated to the sidelines, perched on their Mt. Everest-sized piles of cash, while pensions and everyday investors on behalf of them keep shoveling money into the dangerously top-heavy Mag 7, chasing yet another AI-juiced market high hit earlier today.
Do people really not see the fear out there? Are they really not aware of the deafening uncertainty? Surely they must know about the softening underbelly in the data, and see the autocratic signals and reckless economic proposals coming out of Washington these days. And surely more sophisticated investors can see that the aggregate P/E ratios are nearly double the historical average. That the CAPE (P/E10) is running 112% above its historical mean. That yield curves are dangerously flat, with the 10-year only half a point above the 2-year. That the federal deficit has already blown past $1.6 trillion this fiscal year. And that AI mania is hammering away at entry-level jobs, destabilizing the very workforce we'll need to sustain growth.
So, where's the worry? Why aren't markets panicking, to say nothing of responding rationally? Which is it? Is this the wisdom of crowds at work, Greenspanian "irrational exuberance" back three decades later for a curtain call, or is this blindly complacent market madness?
Economist Paul Krugman weighed in on this very thing earlier today: "Market pricing almost never takes into account the possibility of huge, disruptive events, even when the strong possibility of such events should be obvious. The usual pattern, instead, is one of market complacency until the last possible moment. Markets act as if everything is normal until it's blindingly obvious that it isn't."
Hang on a second. If Krugman is right this means that markets, so often celebrated as the bellwether of the "wisdom of crowds" are, in fact, their own kind of madness. Personally, I've never understood why anyone ever thought otherwise. Markets aren't that much different than crowds. As much as they process knowledge and information, they also process conventional wisdom, and as such, conventional hopes and dreams, conventional stupidity, conventional complacency, and conventional irrationality. Markets, in short, process convention—they may look up, they may look ahead, but like us, they mostly look sideways, holding the safe view until it becomes unsafe.
AND THEN, they lose their shit.
Why is this paradox so hard to see? The very reason people put faith in the wisdom of crowds, in the strange idea that there's safety in numbers, is the very same mechanism by which crowds slide into madness. Complacency feels rational, because everyone else shares it. Until the moment they don't.
Despite a long career as a risk-taking entrepreneur, I generally prefer a preparedness approach to life. Maybe I've been bitten one too many times. No, scratch that, I have been bitten one too many times. I may be entirely comfortable with risk, but what I'm not comfortable with is surprises. I prefer to be ready for the madness over being swept away by it. A mode of living, I'll concede, that can wreck many a perfectly beautiful day or restful night's sleep.
Here's another view of it. Just yesterday, after listening to me yammer on for a long while about some familiar anxieties and grievances, a close friend cautioned that it might be helpful to practice giving as much voice to the many positive things in my life as I do the negative things. You know, balance things out a bit. He also offered that it wouldn't be a bad idea to carry around both sets of glasses—the half full ones and the half empty ones. He's not wrong. I know that. I've given the very same advice to many others. Many times. The problem is that I don't fully buy it for myself.
In my own defense, when I sit for hours on end at the bums-end of a deep worry-hole, I view it less as an indulgence in what if absolutes and more like a responsible undertaking in if-then solutions. It feels productive. Even necessary. Worry, I've thoroughly rationalized, is preparation. For me, it's a way of planning for what's coming before it comes. It's a way of out-surprising surprises.
(Sidebar: 1. The answer is YES, I fully understand how off-tilt this sounds, but trust me, I have my reasons, and further, trust that although this isn't the time or the place to discuss those reasons, the time and place is coming. 2. Writing is in many ways a form of utility thinking, a way of working through chaos, fear, and other intense emotions 'in situ.' Many writers I know, me included, write to work through their 'stuff.' As much as I despise the pain and frivolity of worry, it often soothes me to know, or rather, to believe, or more accurately, to delude myself into believing, perhaps, that at least I'm prepared for what may/could/will come.)
For years people—drivers, pedestrians, other bike riders—have yelled at me for riding my bike against the flow of traffic, facing the cars. I’ve never understood what the hell they’re talking about. To me it’s just another “convention” people obey without thinking. The world is wonderful, sure, but it’s also a complicated and dangerous place, and to the best of my ability I like to know what I’m up against. I want to see it with my own eyes. If an eighteen-wheeler is going to run me down and orphan my children, I want to see it coming. No surprises.
And maybe that's the deeper point hiding in all this. Markets, crowds, politics, even friendships will always tempt us to look sideways, to borrow our bearings from the people around us. That's the so-called "wisdom of crowds." But the actual safeguard, the thing closer to wisdom, is refusing to outsource our perception. It's insisting on looking up, and looking forward, even when it hurts.
Because crowds will eventually admit they were mad all along. The only question is whether, when the truck barrels around the corner, you'll be one of the people staring straight at it or one of the glass lambs with their eyes fixed on everyone else.