I have been re-reading Gustave LeBon's The Crowd, the 1895 classic on the psychology of herd ("crowd") behavior. The French social psychologist was the first to scientifically and methodically study crowd behavior outside the criminal classes.
Here are a few bon mots:
- Crowds amass mediocrity, not intelligence.
- Compared to individual persons, crowds are always intellectually deficient.
- Crowds cannot help but exhibit excessive credulity.
- When in a crowd, an individual's faculties of observation and critical ability vanish.
- Events witnessed by the largest number of people must be questioned most of all.
And what do financial markets have to do with crowd behavior? Well, actually, the proper question is: when do financial markets not have anything to do with crowd behavior?