The Delusions of Crowds

Bernstein starts from a simple claim: humans are storytelling apes, and when a vivid narrative runs into objective fact, the narrative often wins. He uses that idea to explain about five centuries of financial and religious manias. The book is modeled on Charles Mackay's Memoirs of Extraordinary Popular Delusions, but it adds what Mackay could not: evolutionary psychology, neuroscience and experiments on conformity.

Bernstein trained as a neurologist and became a well-known investment writer and adviser, the author of The Four Pillars of Investing, The Birth of Plenty and A Splendid Exchange. Edward Chancellor, reviewing the book in the New York Review of Books, judged him well suited to updating Mackay and called the result a worthy supplement to the original.

The financial chapters run from John Law's Mississippi Company to the late-1990s technology mania, but a large share of the book is about religious manias. Kirkus called it well researched and discouraging. Publishers Weekly thought he went too far in treating mainstream religious politics as madness, Quillette accused him of lumping evangelicals in with cults, and AIER's reviewer found the financial history thin and the account of tulip mania uncritical.

Read it alongside Mackay, Chancellor's Devil Take the Hindmost and Kindleberger's Manias, Panics, and Crashes. It is most useful for spotting the signs of a bubble while you are inside one.

1. Stories beat spreadsheets. In a mania the narrative about the future, not the cash flows, sets prices. Knowing which story the market is telling is the first step to discounting it.
2. Bubbles share a recognizable profile. New technology, easy credit, forgotten past busts and the scorn of believers for skeptics show up from the South Sea Company to the dot-com era.
3. Contradicting evidence can harden belief. People who face clear disconfirmation often double down and recruit others, as failed prophecies show. Investors talking their book do the same.
4. Conformity is wired in. Experiments show people will deny what they can see in order to agree with a group, so consensus on its own tells you little about value.
5. Watch the media cheerleaders. In the late 1990s, financial television mocked doubters at the top. When the loudest voices treat caution as stupidity, risk is high.

The book alternates between religious and financial episodes and moves roughly forward in time. A psychological framework ties them together.

1. Why narratives win. Bernstein sets out the evolutionary and neurological roots of belief, imitation and status-seeking. He explains why people who meet contradicting evidence often dig in, and why groups amplify the effect.
2. Early religious manias. He looks at the end-times fervor of the Reformation era, including the Anabaptists who seized the German city of Münster in 1534, imposed communal property and polygamy, and executed dissenters.
3. The first great bubbles. The South Sea and Mississippi Company schemes of the early eighteenth century show the pattern of easy credit, new financial technology and a story about the future that draws in the public.
4. American prophecy. He covers the movement that expected the world to end in 1843, the 1954 flying-saucer cult studied in When Prophecy Fails, and the rise of dispensationalist end-times belief.
5. Railways, the 1920s and the dot-coms. George Hudson's railway mania, Charles Mitchell's National City Bank in the 1920s, and the dot-com mania with its cheerleading financial television show the same psychology at work in modern markets.
6. Apocalypse now. The closing chapters turn to the Branch Davidians, the rise and fall of the Islamic State, and the influence of end-times belief in American politics.

From the award-winning author of A Splendid Exchange, a fascinating new history of financial and religious mass manias over the past five centuries We are the apes who tell stories,” writes William Bernstein. And no matter how misleading the narrative, if it is compelling enough it will nearly always trump the facts.” As Bernstein shows in his eloquent and persuasive new book, The Delusions of Crowds, throughout human history compelling stories have catalyzed the spread of contagious narratives through susceptible groups—with enormous, often disastrous, consequences. Inspired by Charles Mackay’s 19th-century classic Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, Bernstein engages with mass delusion with the same curiosity and passion, but armed with the latest scientific research that explains the biological, evolutionary, and psychosocial roots of human irrationality. Bernstein tells the stories of dramatic religious and financial mania in western society over the last 500 years—from the Anabaptist Madness that afflicted the Low Countries in the 1530s to the dangerous End-Times beliefs that animate ISIS and pervade today’s polarized America; and from the South Sea Bubble to the Enron scandal and dot com bubbles of recent years. Through Bernstein’s supple prose, the participants are as colorful as their motivation, invariably the desire to improve one’s well-being in this life or the next.” As revealing about human nature as they are historically significant, Bernstein’s chronicles reveal the huge cost and alarming implications of mass mania: for example, belief in dispensationalist End-Times has over decades profoundly affected U.S. Middle East policy. Bernstein observes that if we can absorb the history and biology of mass delusion, we can recognize it more readily in our own time, and avoid its frequently dire impact.