Bad Ideas Can Be Contagious

Nearly four decades ago, psychologist Stanley Milgram had a volunteer stand stock still on a busy New York sidewalk and look up at the sky. About one in every 25 passersby stopped to look up, too. When five volunteers were recruited to sky-gaze, nearly one in five passersby stopped to look up.

When Milgram and his colleagues assembled a group of 18 volunteers to simultaneously look up at nothing in particular, nearly one in two passersby looked up to see what was going on, snarling traffic within moments.

This can be smart if the people on whom you are modeling your behavior know more than you do. But in many situations, no one knows very much. When you follow people who don't know what they are doing, and other people follow you, the resulting feedback allows small events to trigger huge and irrational changes in group behavior.

Such thinking was behind the "Washington's real estate market will never soften" belief between 2000 and 2005, and it's also behind the pervasive pessimism that plagues the same market today, said Robert Shiller, an economist at Yale University and the author of the book "Irrational Exuberance."

As global communication has increased with the advent of the Internet, Shiller and others said, ever-greater feedback systems and contagion effects are likely in real estate and financial markets. To read more click here.

By Shankar Vedantam, The Washington Post
Monday, December 17, 2007