Copycats and Contrarians

by Michelle Baddeley

  21. Scharfstein and Stein (1990). For an analysis of group influences in the asset management market, see also Anna Tilba, Michelle Baddeley and Yixi Liao (2016), ‘The Effectiveness of Oversight Committees: Decision-Making, Governance, Costs and Charges’, Financial Conduct Authority Asset Management Market Study interim report. https://www.fca.org.uk/publication/research/tilba-baddeley-liao.pdf (accessed 7 September 2017).

  22. Keynes (1936).

  23. Colin F. Camerer (2003), Behavioral Game Theory: Experiments in Strategic Interaction, New York/Princeton, NJ: Russell Sage Foundation/Princeton University Press, pp. 216–17.

  24. Keynes (1936), p. 59.

  25. Baddeley (2010).

  26. Mark J. Kamstra, Lisa A. Kramer and Maurice Levi (2003), ‘Winter Blues: A SAD Stock Market Cycle’, American Economic Review 93(1), pp. 324–43.

  27. David Hirshleifer and Tyler Shumway (2003), ‘Good Day Sunshine: Stock Returns and the Weather’, Journal of Finance 58(3), pp. 1009–32.

  28. Robert Prechter (2016), The Socionomic Theory of Finance, Gainesville, GA: Socionomics Institute Press. See also John L. Casti (2010), Mood Matters: From Rising Skirt Lengths to the Collapse of World Powers, Berlin: Springer-Verlag.

  29. An analysis of links between Tulipmania, speculation and economic/financial theory can be found in Michelle Baddeley and John McCombie (2001/2004), ‘An Historical Perspective on Speculative Bubbles and Financial Crisis: Tulipmania and the South Sea Bubble’, in What Global Economic Crisis?, ed. P. Arestis, M. Baddeley and J. McCombie, London: Palgrave Macmillan, and Michelle Baddeley (2018), ‘Financial Instability and Speculative Bubbles: Behavioural Insights and Policy Implications’, in Alternative Approaches in Macroeconomics: Essays in Honour of John McCombie, ed. Philip Arestis, London: Palgrave Macmillan, pp. 209–34.

  30. Keynes (1936), p. 163.

  31. Andrew W. Lo, Dmitry V. Repin and Brett N. Steenbarger (2005), ‘Fear and Greed in Financial Markets: A Clinical Study of Day Traders’, American Economic Review 95(2), pp. 352–9.

  32. Shlomo Benartzi and Richard H. Thaler (1995), ‘Myopic Loss Aversion and the Equity Premium Puzzle’, Quarterly Journal of Economics 110(1), pp. 73–92.

  33. See Hyman P. Minsky (1986), Stabilising an Unstable Economy, New Haven and London: Yale University Press; Hyman P. Minsky (1992), ‘The Financial Instability Hypothesis’, Levy Economics Institute Working Paper No. 74, Annandale on Hudson, NY: The Jerome Levy Economics Institute of Bard College. http://www.levy.org/pubs/wp74.pdf (accessed 5 March 2018).

  34. Loewenstein, Weber, Hsee and Welch (2001); reprinted in G.F. Loewenstein (ed.) (2007), Exotic Preferences: Behavioral Economics and Human Motivation, Oxford University Press, pp. 567–611.

  35. Joseph A. Schumpeter (1934/1981), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, trans. John E. Elliott, New Brunswick, NJ: Transaction Books.

  36. Keynes (1936), pp. 157–8.

  37. Daron Acemoğlu (1992), ‘Learning about Others’ Actions and the Investment Accelerator’, Economic Journal 103(417), pp. 318–28.

  38. Francisco Campos, Michael Frese, Markus Goldstein, Leonardo Iacovone, Hillary C. Johnson, David McKenzie and Mona Mensmann (2017), ‘Teaching Personal Initiative Beats Traditional Training in Boosting Small Business in West Africa’, Science 357, pp. 1287–90. See also ‘Teaching Entrepreneurship: Mind Over Matter’, The Economist, 23 September 2017, p. 69.

  39. Keynes (1936), p. 161.

  40. Jerome Kagan (1998), Galen’s Prophecy: Temperament in Human Nature, New York: Basic Books.

  41. Keynes (1936), p. 150.

  42. George Akerlof and Robert Shiller (2009), Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism, Princeton University Press. In terms of this book’s definition of animal spirits, many have argued that Akerlof and Shiller’s account is not true to Keynes’ original vision of entrepreneurial personalities and motivations. See also Michelle Baddeley (2009), ‘Far from a Rational Crowd: review of G. Akerlof and R. Shiller (2010), “Animal Spirits: How Human Psychology Drives the Economy”’, Science 324, pp. 883–4.

  43. Akerlof and Shiller (2009), pp. 153–6.

  44. For a comprehensive account of who was responsible for the 2007/08 financial crisis, see Howard Davies (2010), The Financial Crisis: Who Is to Blame? Cambridge: Polity Press.

  45. Minsky (1986, 1992).

  46. Paul Ormerod (1998), Butterfly Economics: A New General Theory of Economic and Social Behaviour, London: Faber and Faber.

  47. Tilba, Baddeley and Liao (2016).

  7 Herding experts

  1. Debbie Cenziper (2015), ‘A Disputed Diagnosis Imprisons Parents’, Washington Post, 20 March. https://www.washingtonpost.com/graphics/investigations/shaken-baby-syndrome/ (accessed 27 October 2017).

  2. John Caffey (1974), ‘The Whiplash Shaken Infant Syndrome: Manual Shaking by the Extremities with Whiplash-Induced Intracranial and Intraocular Bleedings, Linked with Residual Permanent Brain Damage and Mental Retardation’, Pediatrics 54(4), pp. 396–403.

  3. Cenziper (2015). For an extensive account, see also ‘Abusive Head Trauma’, Wikipedia. https://en.wikipedia.org/wiki/Abusive_head_trauma (accessed 7 September 2017).

  4. https://www.judiciary.gov.uk/wp-content/uploads/2016/11/squier-v-gmc-protected-approved-judgment-20160311–2.pdf (accessed 27 October 2017).

  5. ‘Doctor Misled Courts in “Shaken Baby” Cases’, BBC News, 11 March 2016. http://www.bbc.co.uk/news/uk-england-oxfordshire-35787095 (accessed 7 September 2017).

  6. ‘General Medical Council Behaving Like a Modern Inquisition’, Guardian, 21 March 2016. https://www.theguardian.com/society/2016/mar/21/gmc-behaving-like-a-modern-inquisition-by-striking-off-dr-waney-squier (accessed 27 October 2017).

  7. ‘Should Waney Squier Have Been Struck Off Over Shaken Baby Syndrome?’, Newsnight, 17 October 2016. http://www.bbc.co.uk/news/health–37672451 (accessed 7 September 2017).

  8. Seymour J. Gray, John A. Benson Jr, Robert W. Reifenstein and Howard M. Spiro, ‘Chronic Stress and Peptic Ulcer’, Journal of the American Medical Association 147(16), pp. 1529–37.

  9. Self-experimentation and self-prescription are themselves the subject of controversy. Some scientific ethics committees have reservations about self-experimentation; morally, however, it is significantly more acceptable than inflicting diseases on others. See also Esther Landhuis (2016), ‘Do It Yourself? When the Researcher Becomes the Subject’, Science, 5 December. http://www.sciencemag.org/careers/2016/12/do-it-yourself-when-researcher-becomes-subject (accessed 7 September 2017).

  10. ‘Office of the Nobel Laureates in Western Australia’. https://www.helicobacter.com/ (accessed 7 September 2017).

  11. Pentti Sipponen and Barry J. Marshall (2000), ‘Gastritis and Gastric Cancer: Western Countries’, Gastroenterology Clinics 29(3), pp. 579–92. https://www.helicobacter.com/single-post/2000/01/01/Gastritis-and-Gastric-Cancer---Western-Countries (accessed 7 September 2017).

  12. Tom Wildie (2017), ‘Latest Helicobacter Pylori Breakthrough Could Lead to Eradication of Bacteria’, ABC News, 4 April. http://www.abc.net.au/news/2017–04–04/researchers-who-discovered-heliobacter-learn-more-about-bacteria/8415686 (accessed 7 September 2017).

  13. David Wootton (2013), Galileo: Watcher of the Skies, New Haven and London: Yale University Press.

  14. For an amusing account, see Lydia Kang and Nate Pedersen, Quackery: A Brief History of the Worst Ways to Cure Everything, New York: Workman Publishing.

  15. See also Sushil Bikhchandani, Amitabh Chandra, Dana Goldman and Ivo Welch (2002), ‘The Economics of Iatroepidemics and Quackeries: Physician Learning, Informational Cascades and Geographic Variation in Medical Practice’, Hanover, NH: Department of Economics, Dartmouth College.

  16. What Michael Gove actually said is recorded on a YouTube video uploaded by rpmackay in 2016: ‘Gove: Britons “Have Had Enough of Experts”’. https://www.youtube.com/watch?v=GGgiGtJk7M
A (accessed 7 September 2017).

  17. Michael Deacon (2016), ‘Michael Gove’s Guide to Britain’s Greatest Enemy . . . the Experts’, Daily Telegraph, 10 June. http://www.telegraph.co.uk/news/2016/06/10/michael-goves-guide-to-britains-greatest-enemy-the-experts/ (accessed 27 October 2017).

  18. The origins and consequences of our disenchantment with experts, and the unfortunate concatenation of populism and anti-intellectualism, is explored by Tom Nichols (2017) in the aptly (if worryingly) titled book, The Death of Expertise: The Campaign Against Established Knowledge and Why It Matters, Oxford University Press.

  19. For the BBC Trust report see ‘Trust Conclusions on the Executive Report on Science Impartiality Review Actions’, BBC Trust, July 2014. http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/our_work/science_impartiality/trust_conclusions.pdf (accessed 7 September 2017). See also Emily Atkin (2014), ‘To Improve Accuracy, BBC Tells Its Reporters to Stop Giving Air Time to Climate Deniers’, ThinkProgress, 7 July. https://thinkprogress.org/to-improve-accuracy-bbc-tells-its-reporters-to-stop-giving-air-time-to-climate-deniers-c4b50fa1dddf/ (accessed 7 September 2017).

  20. Tom Nichols emphasises the dangers of this in terms of the ongoing progress of scientific research. Nichols (2017).

  21. For a general assessment, see Ben Goldacre (2009), Bad Science, London: HarperCollins.

  22. For a survey of this literature, see Surowiecki (2004).

  23. See Beryl Lieff Benderly (2016), ‘How Scientific Culture Discourages New Ideas’, Science, 6 July. http://www.sciencemag.org/careers/2016/07/how-scientific-culture-discourages-new-ideas (accessed 7 September 2017).

  24. George Akerlof (1970), ‘The Market for Lemons: Quality Uncertainty and the Market Mechanism’, Quarterly Journal of Economics 84(3), pp. 488–500.

  25. Brian Deer (2011), ‘How the Case Against the MMR Vaccine was Fixed’, British Medical Journal 342, pp. 77–82; Fiona Godlee, Jane Smith and Harvey Marcovitch (2011), ‘The Fraud Behind the MMR Scare’, British Medical Journal 342, pp. 64–6.

  26. Matthias R. Effinger and Mattias K. Polborn (2001), ‘Herding and Anti-Herding: A Model of Reputational Differentiation’, European Economic Review 45(3), pp. 385–403.

  27. A good summary of the key elements is in Yudhijit Bhattacharjee (2013), ‘The Mind of a Con Man’, New York Times, 26 April. https://www.nytimes.com/2013/04/28/magazine/diederik-stapels-audacious-academic-fraud.html?pagewanted=all (accessed 29 March 2018).

  28. Gustavo Saposnik, Jorge Maurino, Angel P. Sempere, Christian C. Ruff and Philippe N. Tobler (2017), ‘Herding: A New Phenomenon Affecting Medical Decision-Making in Multiple Sclerosis Care? Lessons Learned from DIScUTIR MS’, Patient Preference and Adherence 11, pp. 175–80.

  29. Alan D. Sokal (1996), ‘A Physicist Experiments with Cultural Studies’, Lingua Franca. http://www.physics.nyu.edu/sokal/lingua_franca_v4/lingua_franca_v4.html (accessed 5 September 2017). For the article, see Alan D. Sokal (1994), ‘Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity’, Social Text 46/47, pp. 217–52. For the journal editors’ response to the hoax, see Bruce Robbins and Andrew Ross (1994), ‘Editorial Response to Alan Sokal’s Claim . . .’, Social Text. http://www.physics.nyu.edu/sokal/SocialText_reply_LF.pdf (accessed 7 September 2017). See also ‘Sokal affair’, Wikipedia. https://en.wikipedia.org/wiki/Sokal_affair (accessed 7 September 2017).

  30. Tversky and Kahneman (1974).

  31. Michael Weisberg (2013), ‘Modeling Herding Behavior and Its Risks’, Journal of Economic Methodology 20(1), pp. 6–18; Ryan Muldoon and Michael Weisberg (2011), ‘Epistemic Landscapes and the Division of Cognitive Labor’, Philosophy of Science 76(2), pp. 225–52.

  32. Thomas S. Kuhn (1996), The Structure of Scientific Revolutions, 3rd edn, University of Chicago Press.

  33. Studying real juries is precluded for legal reasons.

  34. Michelle Baddeley and Sophia Parkinson (2012), ‘Group Decision-Making: An Economic Analysis of Social Influence and Individual Difference in Experimental Juries’, Journal of Socioeconomics 41(5), pp. 558–73.

  35. Beauty parades are a different phenomenon to the beauty contests which we explored in the last chapter in the context of financial speculation. In a beauty parade, a series of business people present their business plans to a committee – a board of directors for example. In the case of this FCA study the presentations would be to an oversight committee.

  36. Tilba, Baddeley and Liao (2016).

  37. Elinor Ostrom (2015), Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press.

  8 Following the leader

  1. ‘Pied Piper of Hamelin’, Wikipedia. https://en.wikipedia.org/wiki/Pied_Piper_of_Hamelin (accessed 7 September 2017); ‘The Disturbing True Story of the Pied Piper of Hamelin’, Ancient Origins, 14 August 2014. http://www.ancient-origins.net/myths-legends/disturbing-true-story-pied-piper-hamelin-001969?nopaging=1 (accessed 7 September 2017).

  2. Peter Bazalgette explores the darker side of our identities in the context of genocides and mass murder, focusing on some of the atrocities of the twentieth century, including the Holocaust: Bazalgette (2017).

  3. This contrasts with modern views from neuroscientists, for example Ramsey Raafat and colleagues who, in their analysis of human herding, argued that the leader is not essential to the herding phenomenon. See Raafat, Chater and Frith (2009).

  4. Sigmund Freud (1921), p. 121.

  5. Schumpeter (1934/1981).

  6. Heinrich von Stackelberg (1934/2011), Market Structure and Equilibrium [Marktform und Gleichgewicht], trans. Damien Bazin, Rowland Hill and Lynn Urch, New York: Springer-Verlag.

  7. Harold Hotelling (1929), ‘Stability in Competition’, Economic Journal 39(153), pp. 41–57.

  8. Andrew Beer and Terry Clower (2014), ‘Mobilizing Leadership in Cities and Regions’, Regional Studies, Regional Science 1(1), pp. 5–20.

  9. Michael Nye and Tom Hargreaves (2010), ‘Exploring the Social Dynamics of Pro-Environmental Behaviour Change: A Comparative Study of Intervention Processes at Home and Work’, Journal of Industrial Ecology 14(1), pp. 137–49.

  10. Andrea Galeotti and Sanjeev Goyal (2010), ‘The Law of the Few’, American Economic Review 100(4), pp. 1468–92.

  11. For an engaging exploration of these influences in the business and commercial world, see Julia Hobsbawm (2017), Fully Connected: Surviving and Thriving in the Age of Overload, London: Bloomsbury. For an analysis from the perspective of economic theory, see Sanjeev Goyal (2010), Connections: An Introduction to the Economics of Networks, Princeton University Press.

  12. Sarah Harris (2017), ‘Under the Influence’, Vogue, March, pp. 318–23.

  13. Milgram (1963); Adam Cohen (2008), ‘Four Decades After Milgram, We’re Still Willing to Inflict Pain’, New York Times, 28 December. http://www.nytimes.com/2008/12/29/opinion/29mon3.html?mcubz=1 (accessed 7 September 2017). Recent analysis of Milgram’s early experiments has suggested that the interpretation of the findings may have been flawed: he may have attributed too much to his hypothesis of obedience to authority. See, for example, Adam Sherwin (2014), ‘Famous Milgram “Electric Shocks” Experiment Drew Wrong Conclusions About Evil, Say Psychologists’, Independent, 4 September. http://www.independent.co.uk/news/science/famous-milgram-electric-shocks-experiment-drew-wrong-conclusions-about-evil-say-psychologists-9712600.html (accessed 7 September 2017).

  14. Saul McLeod (2007), ‘The Milgram Experiment’, Simply Psychology. http://www.simplypsychology.org/milgram.html (accessed 7 September 2017).

  15. Milgram (1963). See also Stanley Milgram (1974), Obedience to Authority, New York: Harper and Row.

  16. Marcus Cheetham, Andreas F. Pedroni, Angus Antley, Mel Slater and Lutz Jäncke (2009), ‘Virtual Milgram: Empathic Concern or Personal Distress? Evidence from Functional MRI and Dispositional Measures’, Frontiers in Human Neuroscience 3, article ID 29. https://doi.org/10.3389/neuro.09.029.2009 (accessed 7 September 2017). See also Mel Slate
r, Angus Antley, Adam Davison, David Swapp, Christoph Guger, Chris Barker, Nancy Pistrang and Maria V. Sanchez-Vives (2006), ‘A Virtual Reprise of the Stanley Milgram Obedience Experiments,’ PLOS ONE 1(1):e39. https://doi.org/10.1371/journal.pone.0000039 (accessed 7 September 2017).

  17. Philip Zimbardo (2008), The Lucifer Effect: How Good People Turn Evil, London: Rider/Random House. See also Craig Haney, Curtis Banks and Philip Zimbardo (1973), ‘A Study of Prisoners and Guards in a Simulated Prison’, Naval Research Review 30, pp. 4–17. http://www.garysturt.free-online.co.uk/zimbardo.htm (accessed 7 September 2017); and Philip Zimbardo (1999–2017), ‘Frequently Asked Questions’, Stanford Prison Experiment. http://www.prisonexp.org/faq (accessed 7 September 2017).

  18. Thomas Carnahan and Sam McFarland (2007), ‘Revisiting the Stanford Prison Experiment: Could Participant Self-Selection Have Led the Cruelty?’, Personality and Social Psychology Bulletin 33(5), pp. 603–14.

  19. Craig Haney, Curtis W. Banks and Philip G. Zimbardo (1973), ‘Interpersonal Dynamics in a Simulated Prison’, International Journal of Criminology and Penology 1, pp. 69–97.

  20. Zimbardo (2008).

  21. Armen A. Alchian and Harold Demsetz (1972), ‘Production, Information Costs, and Economic Organization’, American Economic Review 62(5), pp. 777–95.

  22. Nye and Hargreaves (2010).

  23. Danny Wallace (2004), Join Me: The True Story of a Man Who Started a Cult by Accident, London: Ebury Press.

  24. Sigmund Freud (1930), Civilization and Its Discontents, in The Standard Edition of the Complete Psychological Works of Sigmund Freud, Vol. XXI (1927–31), trans. James Strachey in collaboration with Anna Freud, London: Vintage, p. 64.

  25. Sam Harris, Jonas T. Kaplan, Ashley Curiel, Susan Y. Bookheimer, Marco Iacoboni and Mark S. Cohen (2009), ‘The Neural Correlates of Religious and Nonreligious Belief’, PLoS ONE 4(10): e7272. https://doi.org/10.1371/journal.pone.0007272 (accessed 27 October 2017).

  26. Le Bon (1895), p. 12.

  27. Stephen Quirke (2014), Exploring Religion in Ancient Egypt, London: John Wiley and Sons. See also Alastair Sook (2014), ‘Akhenaten – Mad, Bad or Brilliant?’, Daily Telegraph, 9 January. http://www.telegraph.co.uk/culture/art/10561090/Akhenaten-mad-bad-or-brilliant.html (accessed 7 September 2017).