Copycats and Contrarians

by Michelle Baddeley

  Like many mavericks, Reich had a roller-coaster career. A distinguished psychiatrist and psychoanalyst, he enjoyed early success at the heart of the Viennese psychoanalytical community – including a stint serving as deputy director of Freud’s Ambulatorium clinic. Reich’s early writings on mass psychology and character were also influential, inspiring new generations of psychoanalysts, including Sigmund Freud’s daughter Anna. He even managed to persuade major figures to submit to his oddball orgone therapy as well as to test the theory. After extensive dialogues with Reich, even Albert Einstein was persuaded to conduct some experiments on orgone energy. But Reich’s advocacy of controversial therapeutic techniques, including primal therapy and ‘vegetotherapy’ (the therapeutic use of massage as a form of release), attracted criticism from the press and his peers. From the 1940s on, Reich was forced to self-publish a lot of his idiosyncratic theories. Whilst he had many devotees, his ideas lost popular support. Caught up in the McCarthy-era surveillance and ostracism of communists, his maverick life ended pitifully, at the age of sixty, in prison, having been convicted of violating an injunction prohibiting the distribution of his orgone energy accumulators.1

  Celebrated or derided, Reich’s maverick ideas were for a long time at least tolerated. The tipping point for many mavericks like Reich seems to be when their ideas fail to complement what we already know, want, think or believe – when they are too much at odds with the prevailing zeitgeist. When a maverick’s ideas lose all connection with reality as the herd understands it, the balance of public acceptability turns against them. The problem, also illustrated by Reich, is that this tipping point is not necessarily determined by a majority-view consensus. Vested interests who control public perceptions have always aimed to silence mavericks who rebel or who the group decides are dangerous. In today’s world, social media give these vested interests much more power to circulate emotive messages widely and quickly.

  Even so, the majority are often deeply suspicious and intolerant of mavericks. For example, societal conventions around marriage, the family and domestic life are often rigid traditions. Today, many women still risk their reputations, familial and social ostracism, physical isolation, psychological damage, violence and even threats on their lives when they aspire to make choices that sit uneasily with tradition. The journalist Upasana Chauhan, who wrote about her parents’ violent threats when she was making her own choices about marriage, provides an example. Born in Haryana, India, Chauhan met and fell in love with a man from another caste. When she told her parents she wanted to marry him, their first response was to threaten to kill him. They put their daughter under house arrest until she convinced them that she would not marry without their blessing.2 Upasana Chauhan was much luckier than many others in a similar position because, eventually, her parents and community agreed to support her marriage and husband. Other mavericks in similar situations have signed up for lives as social outcasts, and sometimes much worse.3

  These struggles are one illustration of the conflicted feelings that mavericks inspire in us. We may worry about their intentions or methods. We may be confused by the ideas they are trying to convey. But at the same time, they fascinate us. Mavericks’ singularity is undeniably interesting. Indeed, many of us could call ourselves novophiles. In principle at least, we like what’s new, different and unique. New ideas have value, and it is mavericks who are often the ones brave enough to abandon old ways in favour of new. As John Maynard Keynes observed, ‘The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.’4

  The illustrator William Heath Robinson tapped into our love of the unusual with his drawings of fantastical contraptions – some not too dissimilar to Reich’s orgone cupboard. His inventions were whimsical and wacky, often held together with not much more than string. One of his ideas was the ‘Wart Chair’, a complex device designed to remove warts from heads; another a ‘multi-movement’ machine for gathering Easter eggs. He also imagined a device for killing flies with a ukulele.5 Heath Robinson’s name has gone into the English lexicon as an adjective to describe things patched together in a higgledy-piggledy, make-do way.6 But his concepts were not just for amusement: his early illustrations were designed to counterbalance German propaganda and lift the spirits of troops suffering misery in the trenches of the First World War. His later drawings poked gentle fun at the pomposity and bureaucracy of experts, his machines a metaphor for Byzantine bureaucratic systems and structures in the interwar world. Maverick, sometimes even mad ideas can play a social and political purpose as long as they are well judged, in the collective subjective opinion. Sometimes we need more of them to counterbalance the excessive dominance of herding and convention in so many aspects of our lives. We like to see contrarians taking on authority and the Establishment. We admire contrarians’ independence of thought. Their ideas are engaging and inspire our imaginations and optimism.

  Figure 6. Maverick ideas: a Heath Robinson ‘Wart Chair’.

  Why be a maverick?

  So – what motivates mavericks? What drives them to make their own way, risking social approbation in the process? And why do some of us choose a maverick path while others avoid it? Just like the social influences driving our conformist natures, contrarian behaviour is driven by a complex range of economic, social and psychological influences. In previous chapters we explored some of the behaviours that characterise copycats. Sometimes copycats are driven by self-interest, at other times by some sort of collective consciousness. Either way, individual copycats choose to move with a herd for a wide range of reasons, many of which link to their own welfare and survival chances in an uncertain world. It may seem that contrarians should be much harder to understand and explain; certainly, the literature on contrarians and mavericks is much smaller than that on copycats and herding. But in fact, mavericks’ choices to rebel against a crowd can reflect a surprisingly similar set of motivations as those infuencing copycats. We are copycats partly because there are economic incentives to join the crowd, and these incentives tap into our self-interest. Mavericks are also propelled by self-interest. They use social information, they build their reputations, and they balance trade-offs between risk and reward. These are the corollaries of self-interested herding. Similarly, mavericks have incentives to promote their own individual advantage, but by acting contrary to the crowd. They are balancing the economic incentives too, but deciding on the opposite course of action. Their preferences incline them towards rebellion and dissent. Running alongside these consciously individualistic motivations are the corollaries of the unconscious drivers of collective herding. Often contrarianism is not the product of a rational calculation of relative benefits. Sometimes contrarians are motivated by psychological influences including cognitive biases, personality and emotions, as we shall see.

  Mavericks and information

  A good place to start our exploration of the incentives driving mavericks is with the economists’ models of self-interested herding. These economic models suggest that, fundamentally, copycats and contrarians are not that different. Both types are rationally maximising their own self-interest – they just balance the incentives to come up with a different sort of decision.

  The starkest economic models capture some aspects of mavericks and contrarians quite well. If information is good and uncertainty is limited then it makes economic sense just to get on and do your own thing. Sacrificing self-interest helps no-one when our choices and decisions are coordinated via anonymous markets and other institutions. But we do not live in this sort of world. We live in a world in which information is poor, uncertainty is endemic and market failures are everywhere.

  As we saw in chapter 1 with the example of choosing between two restaurants, economic models of herding focus on the balance of private and social information. Economists postulate that we use mathematical rules, specifically Bayes’ rule, to balance these different types of information.
When choosing between two restaurants, we may have some private information – for example a friend’s recommendation; and we may have some social information – one restaurant is crowded and the other is empty. The larger the crowd in one restaurant, the more likely that we will choose to eat there too. Why might a contrarian choose to eat at the other establishment?

  In this simple restaurant scenario, private and social information are treated equally according to the quantity of the evidence. The different pieces of information are like signals. We have a private signal (the restaurant review or a friend’s recommendation) and a number of social signals equivalent to the number of people already eating (we infer that each person has chosen that restaurant for a reason). For most people, the large number of social signals will outweigh the one private signals. Contrarians are more likely to over-weight their private signal. Some contrarians are very confident in their own power to decide well without worrying about what others are doing. They discount the social information implicit in the choices of others around them, weighting their own private signals much more heavily than ordinary mortals susceptible to persuasion by others.

  By embedding these insights, economic herding models can be adapted to capture mavericks too. In 1998, herding model innovator David Hirshleifer and his PhD student Robert Noah adapted the herding model to ‘misfits’ – essentially capturing the behaviour of mavericks and contrarians. They argued that self-interested herding is disrupted by the presence of misfits – which is a good thing if the herd is going in the wrong direction. Misfits can play an essential role in social progress and improving social welfare, depending on the type of misfit.7 In Hirshleifer and Noah’s view, there is a range of types of individual who are inclined to eschew the queue. There are the Newcomers, who have had no chance to observe the herd because either they have only recently arrived, are not well placed to use social information and/or are prohibited from joining the herd for some reason. Then there are the Prophets, who have better private information (and know it) and so are less likely to be swayed by the actions of others. Joining the Newcomers and Prophets are the overconfident Fools, who do not really know better than others around them but believe that they do. Arrogantly, they falsely over-weight their private judgement and let it trump the social information conveyed in the actions of the herd. Then there are the Rebels, who have different payoffs – perhaps they get some additional satisfaction from rebelling itself, and so are more inclined to discount the social information implicit in others’ choices.8

  The problem is that all these types of contrarians – Newcomers, Fools, Prophets and Rebels – are behaving the same way by anti-herding. Just from watching them, we can’t tell the difference between them because we have no information to judge how reliable they may or may not be. They all move against the herd, but for very different reasons. Some of them are contrarians for reasons that might not suit us, or could mislead us. How do we know whether or not we should follow them? The problem is that there is no clear solution. The uncertain herd might want to weight more strongly the information implicit in Prophets’ choices and discount the actions of Newcomers and Fools. We might try to find out more about the contrarians to establish whether they have a reputation for reliability or prescience. Prophets who have a long track record will have built up a good reputation if they are truly wiser. Whether or not it is wise to copy a Rebel is less clear – we might decide we would like to copy them because we want to emulate their independent natures. We are conflicted: we like the thought of being unconventional but we do not want to be alone. We may lack the confidence to be a lone contrarian, but can be encouraged to join a small band of contrarians if a Rebel is prepared to take the lead.

  Maverick risks

  One characteristic that most mavericks obviously share is that they relish taking the risks that copycats prefer to avoid. This is easiest to see in the context of financial contrarianism, where maverick risk is an established practice.9 Hollywood has popularised many examples, both fictional and real – from Gordon Gekko of Wall Street, an asocial criminal who has no regard for others in his strategies for making money, to the real-life maverick traders depicted in the 2015 biographic The Big Short, who displayed at least some social conscience as they hunted profits. This small group of mavens bet against the mortgage-backed assets created during the boom in the American sub-prime mortgage market during the 1990s and 2000s. Ridiculed and dismissed before the crash, they were proved right and made plenty of money out of their foresight, founded on their clever analysis of the objective evidence showing how unstable US subprime mortgage markets had become. More generally, however, mavericks have a lot to lose when they dissent. A speculator going against the market, for example by buying a financial asset when everyone else is selling it, is taking a big risk. They may lose a lot in terms of money, but they also risk their reputation if they are wrong. Why might a maverick speculator decide to risk anti-herding? Because, potentially, the rewards are very large for the speculator who can outwit the market. The risks faced by copycats and contrarians link to another economic model – a model of conformity developed by the American economist Douglas Bernheim. He explored the idea that conformity has value for self-interested individuals preoccupied with status, but for others contrarianism has more value. Bernheim argues that mavericks differ from copycats not only because they enjoy being contrarians but also because of their extreme preferences, manifested in the risks they are prepared to take in violating social norms.10

  To understand how the risk dimension operates, we first need to learn more about how economists capture risk-taking. Economists have done a lot of work on risk. The standard view in economic theory is that risky choices can be captured by some embellishments of utility theory, one of the building blocks of mainstream economic theory. ‘Utility’ is the economists’ word for happiness and satisfaction. We get utility from something if we think it is useful (where ‘useful’ is defined very broadly). According to the simplest versions of mainstream economic theory, we aim to maximise our utility from all the things we purchase and enjoy because we want to do the best for ourselves.

  Expected utility theory brings the element of chance into the picture.11 We do not know for sure what will happen next, and so we think about the relative chances of different things occurring: we form expectations of future outcomes. When we buy a lottery ticket, we balance our expectation of winning a prize against our expectation of not winning a prize. If we are forming expectations rationally, then we will know that the chances of us hitting the jackpot are very small and the chances of us getting nothing at all are very large (after all, why else would revenue-chasing organisations sell lottery tickets?).

  To capture people’s different attitudes towards risk, economists connect expectations with how our utility changes when we get more of something we like. As the saying goes, you can have too much of a good thing. The more we have of something, the less we enjoy some more of it. If we have eaten one chocolate bar, for example, we might quite enjoy a second, but the third chocolate bar – not so much. If we have eaten ten chocolate bars, then we are not likely to get much satisfaction at all from an eleventh. This illustrates the economic principle of diminishing marginal utility: our utility is diminishing with each extra chocolate bar we consume. Extreme outcomes – having either no or lots of chocolate bars to eat – don’t bring us much extra utility. We prefer an average outcome – perhaps five or so chocolate bars.

  Economists assume that, for most people, money is characterised by this diminishing marginal utility property too, and this links to risk. In economic theory, when a risk-averse person is offered a choice between a guaranteed sum of money – say $10 – and a gamble which gives them a 10 per cent chance of winning $100 but a 90 per cent chance of $0, they will avoid the gamble. This is because risk-averse people do not like extreme outcomes – the prospect of winning $100 is not appealing to them if at the same time they risk being left with nothing. Risk-averse people prefer average
outcomes. They will forgo the chances of winning a large prize in order not to lose a lot. Risk-loving people have the opposite attitude – they have an increasing marginal utility for money. The more money they have the more they want. So they are happier gambling on extremes. They may lose everything but when they win, the utility they gain from these extra winnings will be magnified.

  We can apply these ideas about expected utility and risk to our analysis of risk-seeking mavericks. Conformists prefer to be average because conforming means not much is lost, even if nothing much is gained. Contrarians, on the other hand, not only get less satisfaction from being conventional, they also get more out of chasing extremes because they enjoy the risk of being different. They want to move away from all the advantages that following the herd offers in terms of an averagely satisfactory existence. They want to take a chance on something different, even if they risk losing everything in the process.

  Beating the crowd

  Maverick risk-taking also connects with mavericks’ desires to beat the crowd. Sometimes the winner takes all, and second-comers are left with little or nothing. The prize can take the form of money, applause or reputation. To beat everyone else, mavericks are often prepared to take extreme risks by investing a great deal, either in personal or in monetary terms. Invention and innovation illustrate well the vital importance of being first. Scientific researchers get very little credit for replicating other scientists’ findings, even if the originality of their insight is failing to replicate bad results from another scientist’s flawed research. Nevertheless, they are unlikely to get much attention. They will struggle to publish their contrary evidence because scientific journals are biased towards original and positive findings, and are not so interested in research suggesting that another researcher’s original insights are wrong.