Danger! People Thinking!

You don't say "be unreasonable." The judge sentences the brutal assailant with "You acted like an irrational animal."

This has a lot to do with the stock market, because if you are being strictly empirical on any given day and in any given trade one of the traders is wrong and the other is right. But they both leave work at the end of the day thinking they made the right decisions. Only tomorrow will tell which was right. But both had their reasons. And the whole system is predicated on the notion that people dealing with money do so with a good measure of reason. "Rationality" is supposed to be the basic sauce of the economic menu. When Alan Greenspan recited his "irrational exuberance" poem he was expressing regret that people were paying too much money for shares in often-nebulous companies that could well never produce any earnings for shareholders, apart from the privileged insiders who could sell out early. It turns out that (for the moment) he was right, because the primary foci of exuberance were technology companies doing things and producing services that either didn't yet exist or that no one could understand or even see. (What do Cisco and Oracle and Sun actually do?) Nevertheless, by the time this is printed the whole picture could have gone back to last week's version. And then back. And then back.

Meanwhile, you might well ask, what about that famous human reason? Weren't the same people doing both things?buying expensive shares when they were going up and selling them more cheaply when they went down? Did they have brain transplants mid-market? Did the substances they ingested change, or did they go from high-protein food to low? Were any more or any fewer widgets being produced one week to the next? Were these the same supposedly rational, reasonable paragons of reflection and analysis one day after another? Has dress-down Monday-to-Friday dumbed the financial players down? Or did a different circus come into town without any public announcement?

And the final answer is: not only humans are intensely subject to the pressures of other beings. A remarkable biologist named Michael Chance of the University of Birmingham in England once showed that rats in communal cages responded to experimental drugs in a communal way. When they were in separate cages, the pattern of responses was much less clustered in the middle of the curve of distribution. Even their inner physiology was social. The culture affected their squishy bodily bits. Of course, the drug testers badly wanted to know which doses had no effect at all or which croaked the unfortunate little creatures. So they stopped using communal cages, even though they were cheaper.

Similar findings in other species about the importance of cultural patterns underline the connection between humans and other animals in how difficult it is for individuals to withstand the persuasive flurry of the actions of others. There is a deep socio-organic reason solitary confinement is the worst punishment authorities can administer, next to execution and torture. People want and need people, even presumably antisocial and questionable ones such as fellow felons who have to be kept in cages because they are considered too bad or dangerous to stir coffee at a diner counter.

And markets are cultures. It's no accident that colorful animal names are used to describe the two most important moods of investors, bulls and bears. The rat-reason the stock market goes up and down often with no crisp rationality is the same as that one year Tommy Hilfiger clothes are the only ones youngsters absolutely need and the following year are precisely the ones they don't need and won't, won't buy. At least in the case of Hilfiger stock, the declining sales of logowear has driven down the price of Hilfiger shares because nothing, no Internet or interactive magic or great fashion innovation in which people wear eight Tommy t-shirts at once, will replace the economic magic of selling inexpensive cottonwear more expensively because Tommy's name is on it. But the situation is much more confusing for such companies as Amazon.com (which appears to lose money on every book it sells, though it is "building market share") and other companies spending all their IPO money on expensive ads in The Wall Street Journal and every glossy business magazine in town.

Not that the economic world hasn't changed. Countless books and some other products are bought on the Net?for example the wonderful speakers for my computer I was able to get in two minutes for $73 because a friend passed on his receipt from the Internet vendor. Facilities such as e-mail have profoundly reduced costs and increased efficiency in countless precincts of the world. Remember when travel agents had to write out tickets by hand and changing a complicated itinerary was as cumbersome as changing your name in Switzerland? When people used to enter your bank deposit in a book you carried with you? Airplanes still fly through the night with scribbled checks going from one Federal Reserve Bank to another but we are promised that soon this will become unnecessary. And there are plentiful other changes in economic life that will continue to produce decisive amelioration in the amount of donkey work necessary to keep the world going, which will generate more real choices about real things for more people. And these changes will depend on electricity and, increasingly, light, which compared to other energy sources don't have to be carried around in barrels and don't smell when you use them. So there is promise and the reality of promise just around the corner.

But paradoxes abound. One of the ongoing complaints about stock market prosperity Chairman Alan has made is that a rising stock market makes people feel wealthy and so they spend more. That seems reasonable. Descartes would approve. I buy a share for 10 dollars and sell it for 30 so I have 20 new dollars to spend on doilies, Haagen-Dazs or flea-market pantaloons.

But wait. Somebody else gave me their 30 dollars that they are now unable to spend on doilies, Haagen-Dazs or recycled yellow garments. Don't these trades balance each other out? Why is Greenspan grumpy about my $20 but unsympathetic to my pantaloonless trading partner? I have buying power, but he has less.

Greenspan has a point. People often overreact, a danger to any economy. When people have a bit of cash they spend even more. When they get cut back, they cut back more. One of the few times I was in a casino was in Estoril near Lisbon in Portugal and went for fun with about a hundred to lose. One of the few games I could understand was roulette so I bet my son's birthday on red and won. I put my winnings into a secure pocket and in a puzzled while bet the same way, and won again. I kept that booty separate too and bet again and won once more. At that point a sharp-eyed and elegant lady of the late evening approached me. She had obviously observed that I was now a potential big spender, since I had contrived an interesting amount of free money out of the universe. Her practical economic experience must have been that I was likely to obey Greenspan's Law and spend it, presumably with her warm cooperation. Evidently as grumpy as Greenspan, I promptly left.

Again, the problem is overreaction. People can't be trusted to get the facts right, as if they were reasonable, sapient, sage, like that. The notion of perfectly efficient markets is an economic product that has had a long shelf life but fortunately for economists doesn't come with a guarantee. Often enough to be troubling, even morally, markets are like rat packs even though a great deal is at stake, for example nothing less than the savings of the community. Sometimes it's even more directly tragic. A just-published Franco-American study of 191 HIV patients tells us that after homo- or bisexual patients began protease inhibitor therapy, a significant number increased their conduct of unprotected sex. Since they were now being treated by competent and knowledgeable scientists therefore they were somehow exempt from the dread laws of the disease they knew they had. Others are of course put at risk. A national Centers for Disease Control study describes a rise in rectal gonorrhea among gay men. This is little different from countless heterosexual men who forgo condoms that prevent infection and conception. Or the countless couples around the world who generate countless abortions because they miscalculate either their fertility or their partners' intentions or the underlying mission of sex?reproduction.

It's a far cry from the bedroom to the boardroom, but the same administrative organ, the brain, is involved in both. The brain evolved to act, not to think, and to act in groups. Entities like the stock market are composed of individuals taking their cues from the overwhelming influence of groups. A few can be wholly independent-minded, which may or may not work for them. But in the last analysis, when the value of stocks goes up by 800 billion on Tuesday and down by 1400 billion on Friday nothing real has changed except minds.

DANGER! Homo sapiens at work!