While there is a certain amount of wisdom in crowds there is also great folly. Financial markets, like a West Ham United match day kick-off, to give just one example, are forever blowing bubbles. Bubbles — of the financial not London football club variety — are economic events defined by a rapid escalation of asset prices followed by a sudden, often calamitous, drop of the same. This surge in prices is driven by an irrational, crowd-induced mania that divorces stocks and other equities from their underlying value. Investors abandon traditional fundamentals of investing in favor of cashing in on the bonanza because, hey, everyone can’t be wrong!
Everyone can be wrong.
The Russian commanders, excepting Kutuzov of course, are wrong today. They see a weakened French army and they want to pounce. They counsel attack. Kutuzov does his best to warn them. Why attack? he asks. The French are a fleeing and mortally wounded animal. There is no need to attack. Nature will take care them. No need for intervention.
Nobody listens. The urge to attack spreads like a contagion among the people with the fierceness of tulip mania and the exuberance of the dotcom boom. Only when this bubble bursts the result is that thousands are killed and wounded. “But,” Tolstoy writes, “they did not cut off or overthrow anybody, and the French army, closing up more firmly at the danger, continued, while steadily melting away, to pursue its fatal path to Smolensk.”
Do you ask me what you should regard as especially to be avoided? I say, crowds; for as yet you cannot trust yourself to them with safety. […] To consort with the crowd is harmful; there is no person who does not make some vice attractive to us, or stamp it upon us, or taint us unconsciously therewith. Certainly, the greater the mob with which we mingle, the greater the danger.
Seneca, Letter VII