Re: STOCKS: An unnerving thought

From: Matt Gingell (
Date: Sun Apr 16 2000 - 00:51:17 MDT

> ...I imagined this incredible pyramid scheme, with everybody putting
> money in and hoping desperately to be able to guess when it would collapse -
> better than the rest of the suckers. Then, when the pyramid starts quaking,
> they see that there's another one to jump to that's still going up. But
> they quickly drive that one to the limit as well, so they then jump back to
> get in on the bargains in the first one. Problem is that there isn't much
> new money available from anywhere, so this oscillation is just a predictor
> of the imminent general collapse.

The pyramid-scheme analogy was made by some eminent pundit in the
Times a month or so ago. The interesting thing though is it's an
emergent pyramid - one that's just popped into being rather than being
deliberately designed. I like the idea of an unconscious, collective

Each investor acts rationally: if I think a stock with .com in the
title but no real value will go up because everyone else is an idiot,
then it makes perfect sense to buy. I just want to make money. Buying
makes even more sense if I figure enough other people are reasoning
the same way, which has certainly seemed true over the last couple of

If enough people bid in then the prophesy fulfills itself and the same
reasoning is yet more justified the next time round. It's a crock, and
I _know_ it's a crock, but locally the correct thing to do is buy. The
globally crazy result is the outcome of millions of independently
sensible decisions - insanity emerges.


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