Extraordinary popular delusions

By Tom McPhail | 26 Aug, 2008 

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one!" Charles MacKay.

For anyone who hasn’t read this wonderful work, and who is interested in how people – and markets – behave, I would like to recommend as essential reading ‘Extraordinary Popular Delusions and the Madness of Crowds’ by Charles MacKay. The book is remarkable not least for the fact that it was first published in 1841, and is still selling well today.

The most relevant chapters (unless you are particularly interested in beard fashions, the Crusades or witch burning) cover Tulipmania, the French Mississippi land deals and the South Seas bubble of the early 18th Century. These stories cover the characteristics of speculative market bubbles, and recount tales of self-delusion by investors which should be barely credible, were it not for the fact that these patterns have been repeated time and time again, for example in railway shares and the dotcom boom.

This is one of those publications which will be found on the bookshelves of most students interested in financial markets and human behaviour; for those who have not yet encountered it, this is one book that is well worth seeking out.