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The market is a crowd of people with a common in interest in speculation and investment linked together by the markets and its infrastructure. A crowd moves in one direction or mills about. Occasionally a group will bunch up and slow progress, or there will be a rush or a line or times where a large numbers rush in one direction to some perceived information or on a common agenda.
New Yorkers are very familiar with crowd dynamics on a day to day basis. Mr.. E mentioned his study last year on crowds panicking in burning clubs with the exits blocked which might be like a no liquidity panic. The opinion of crowds can be swayed, but it is hard to change their opinion once formed. When Speaking to a crowd (or a jury) it is a thrill to sway them to your thinking, but terrifying when they are against you. Why do crowds do what they do? Understanding crowd behavior might give market insights. There are sound lessons here for politicians and lawyers and even teachers as well.
From Le Bon, Gustave, The Crowd: A Study of the Popular Mind, a descriptions of crowds (and the market).
1. A numerically strong agglomeration of individuals does not suffice to form a crowd. In its ordinary sense the word "crowd" means a gathering of individuals of whatever nationality, profession, or sex, and whatever be the chances that have brought them together..... The most striking peculiarity presented by a psychological crowd is the following: Whoever be the individuals that compose it, however like or unlike be their mode of life, their occupations, their character, or their intelligence, the fact that they have been transformed into a crowd puts them in possession of a sort of collective mind which makes them feel, think, and act in a manner quite different from that in which each individual of them would feel, think, and act were he in a state of isolation." --
2. Behind the avowed causes of our acts there lie secret causes that we do not avow, but behind these secret causes there are many others more secret still which we ourselves ignore. The greater part of our daily actions are the result of hidden motives which escape our observation.....It is precisely these general qualities of character, governed by forces of which we are unconscious, and possessed by the majority of the normal individuals of a race in much the same degree -- it is precisely these qualities, that in crowds become common property. In the collective mind the intellectual aptitudes of the individuals, and in consequence their individuality, are weakened........This very fact that crowds possess in common ordinary qualities explains why they can never accomplish acts demanding a high degree of intelligence. The decisions affecting matters of general interest come to by an assembly of men of distinction, but specialists in different walks of life, are not sensibly superior to the decisions that would be adopted by a gathering of imbeciles.
3. The crowd is at the mercy of all exterior exciting causes because Crowds are credulous and readily influenced by suggestion./../The mechanism of a collective hallucination. Crowds do not admit doubt or uncertainty, and always go to extremes -- Their sentiments always excessive.
4. Crowds do not reason.--The reasoning of crowds is always of a very inferior order--There is only the appearance of analogy or succession in the ideas they associate. Crowds are influenced by their unconscious sentiments.
5. Crowds think in images, and these images succeed each other without any connecting link. This is reflected in modern television style or unconnected succession of 3 second images in rapid succession.
6. Crowds always prefer illusions to truths. The market often succumbs to ballyhoo and illusion.
7. Crowds are governed by fixed beliefs that are connected to the basis of their societies.
8. Crowds have rapidly changeable opinions and are subject to extreme mobility of opinions which do not arise from general beliefs. Fish seem to operate in a similar manner often changing direction en mass based on either small external stimuli or an internal cue.
James Sogi is a philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family