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Extraordinary Popular Delusions and the Madness of Crowds

Free Charting Software for Indian Markets

Book review of: Extraordinary Popular Delusions and the Madness of Crowds

Change is Unchanging! History repeating itself.

You can judge this book by its title. It is a classic effort detailing the follies of mass psychology. The author is successful in showing how a crowd of rational thinking people act completely irrationally as trends become popular and people are psyched to believe that they are the gospels of truth. The real life events in this book are the basis for the study of group dynamics and psychology. It is written in great detail, so for those who love studying and learning from history, this is great reference material. It helps understand the prevailing mind set during a mania. When we think of recent historical events in financial markets (Japanese stock market bubble, NASDAQ bubble, Housing mortgage bubble etc.) and investigate the prevailing mind set during these times, it rings a bell. It reminds me of the quote, ”Borrowed enthusiasm makes you a speculator not an investor.”

The believers of the “efficient market hypothesis” condemn Mackay’s material as being exaggerated and mistimed to draw such conclusions. However, I would agree with what the author has tried to prove in this book as historical evidence has more relevance than economic theories.

The readers can also keenly observe how government actions can and have played an instrumental role in fuelling and diffusing the manias and panics. This book will remain as evergreen as it is today even decades later. It enforces the belief that the world can be a very irrational place.

The main areas of focus for me were:
1. The Mississippi Scheme
2. The South Sea Bubble
3. The Tulipomania

Famous quotes from the book:
• “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.”
• “Of all the offspring of Time, Error is the most ancient, and is so old and familiar an acquaintance, that Truth, when discovered, comes upon most of us like an intruder, and meets the intruder’s welcome.”

Change is Unchanging! History repeating itself.


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