Grove Press
Atlantic Monthly Press
Atlantic Monthly Press

The Delusions of Crowds

Why People Go Mad in Groups

by William J. Bernstein
  • Imprint Grove Paperback
  • Page Count 496
  • Publication Date March 15, 2022
  • ISBN-13 978-0-8021-5710-2
  • Dimensions 6" x 9"
  • US List Price $20.00
  • Imprint Atlantic Monthly Press
  • Page Count 496
  • Publication Date February 23, 2021
  • ISBN-13 978-0-8021-5709-6
  • Dimensions 6" x 9"
  • US List Price $35.00
  • Imprint Atlantic Monthly Press
  • Publication Date February 23, 2021
  • ISBN-13 978-0-8021-5711-9
  • US List Price $35.00

“We are the apes who tell stories,” writes William Bernstein. “And no matter how misleading the narrative, if it is compelling enough it will nearly always trump the facts.” As Bernstein shows in his eloquent and persuasive new book, The Delusions of Crowds, throughout human history compelling stories have catalyzed the spread of contagious narratives through susceptible groups—with enormous, often disastrous, consequences.

Inspired by Charles Mackay’s 19th-century classic Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, Bernstein engages with mass delusion with the same curiosity and passion, but armed with the latest scientific research that explains the biological, evolutionary, and psychosocial roots of human irrationality. Bernstein tells the stories of dramatic religious and financial mania in western society over the last 500 years—from the Anabaptist Madness that afflicted the Low Countries in the 1530s to the dangerous End-Times beliefs that animate ISIS and pervade today’s polarized America; and from the South Sea Bubble to the Enron scandal and dot com bubbles of recent years. Through Bernstein’s supple prose, the participants are as colorful as their motivation, invariably “the desire to improve one’s well-being in this life or the next.”

As revealing about human nature as they are historically significant, Bernstein’s chronicles reveal the huge cost and alarming implications of mass mania: for example, belief in dispensationalist End-Times has over decades profoundly affected U.S. Middle East policy. Bernstein observes that if we can absorb the history and biology of mass delusion, we can recognize it more readily in our own time, and avoid its frequently dire impact.

Praise for The Delusions of Crowds:

Named a Most Anticipated Book by Literary Hub

“Bernstein’s book, a survey of financial and religious manias, is inspired by Charles Mackay’s 1841 work, ‘Memoirs of Extraordinary Popular Delusions and the Madness of Crowds.’ Mackay saw crowd dynamics as central to phenomena as disparate as the South Sea Bubble, the Crusades, witch hunts, and alchemy. Bernstein uses the lessons of evolutionary psychology and neuroscience to elucidate some of Mackay’s observations, and argues that our propensity to go nuts en masse is determined in part by a hardwired weakness for stories. ‘Humans understand the world through narratives,’ he writes. ‘However much we flatter ourselves about our individual rationality, a good story, no matter how analytically deficient, lingers in the mind, resonates emotionally, and persuades more than the most dispositive facts or data.’”—New Yorker

“Bernstein, a trained neurologist and the author of several investment books, is particularly well suited to the task of updating Mackay, and his Delusions of Crowds is a worthy supplement to the original.”—Edward Chancellor, New York Review of Books

Bernstein wants us to understand that human beings are not remotely as smart or as rational as we would like them to be. Only rarely are people truly analytical about anything. We make things up constantly, then claim that our inventions are true . . . But we don’t need a poll to confirm Mackay’s and Bernstein’s conclusion that people tend to believe what they want to believe, whether or not hard facts and cold reason support their views. We know, for example, that on Nov. 3, more than 74 million Americans voted to reelect a man whom a slew of serious historians have already identified as the worst president in American history . . . Explains Bernstein: ‘When compelling narrative [Make America Great Again, for example] and objective fact collide, the former often survives, an outcome that has cursed mankind since time immemorial.’”—Robert G. Kaiser, Washington Post

“Authoritative . . . Bernstein’s command of detail is capacious; his ability to weave the facts into a limpid narrative is equally sure handed . . . Bernstein’s lucid and entertaining history is a warning that the primitive mind lurks under the sheen of alleged rationality, and that a departure into the comforting certainties of groupthink is closer than we may realize.”—Los Angeles Review of Books

“Fascinating . . . Bernstein is an entertaining chronicler and analyst of these human failings.”—David Aaronovitch, Times (UK)

“Mackay’s 1841 work has been brilliantly updated for the 21st century by the investment writer William Bernstein.”—Reuters

“An intriguing contemporary update of Charles Mackay’s 1841 classic, Memoirs of Extraordinary Popular Delusions . . . Readers will wince at the often bloody hysteria that accompanied the Reformation, roll their eyes at our inability to resist get-rich-quick schemes, and chuckle at the widespread American movement that awaited the world’s end in 1843—all of which makes for disturbing yet fascinating reading . . . A well-researched, wide-ranging, and discouraging addition to the why-people-do-stupid-things genre.”—Kirkus Reviews


Praise for A Splendid Exchange:

“[An] entertaining and greatly enlightening book . . . Bernstein is a fine writer and knows how to tell a great story well. . . . He never loses sight of his overall goal: to show how trade shaped the world in the past and will shape the world in the future. . . . A Splendid Exchange is a splendid book.”New York Times

A Splendid Exchange is a timely and readable reminder that the desire to trade is not only one of the oldest human instincts but also the cause of many of the most important developments in our shared history. . . . With an ability to switch gracefully from the macro to the micro, Mr. Bernstein whisks his reader on a tumultuous journey. . . . The strength of Mr. Bernstein’s book is the analytical rigor that overlays the rollicking history and the way in which he seamlessly weaves in the theoretical with the practical. For anyone wanting a painless primer in the ideas of Adam Smith, David Ricardo or more recent economists, such as Paul Samuelson, this is the place to find it.”Economist

“Sparkling . . . One freewheeling historical passage follows another . . . A Splendid Exchange is saved from any possible tedium by its feast of contrarian conclusions, its broad historical sweep, and, especially, its vivid characters . . . Fascinating.”BusinessWeek

“Superb . . . [A] significant contribution . . . The chronological range of Bernstein’s book is staggering. . . . A Splendid Exchange is a work of which Adam Smith and Max Weber would have approved. And it is all the more interesting because it is written by someone who is deeply knowledgeable about and active in the financial world yet finds the time to write graceful and insightful history with a delicate display of scholarship that conceals a vast erudition. What really marks Bernstein out is his talent in understanding, and then explaining, international commercial linkages.”Foreign Affairs

“Vivid . . . Colourful . . . Highly entertaining . . . A fascinating journey through the evolution of trade . . . Bernstein’s enthusiasm for his subject and impressive organisation of a wealth of material enable him to plot with pace and verve a largely chronological account of man’s trading history.”Financial Times

A Splendid Exchange is filled with adroit observations on the evolution of trade from the ancient world to today. Bernstein draws upon a vast historical context to show how trade’s development is part of society’s natural progression toward prosperity, and he makes a convincing case that trade and trade policy have been the catalyst for the development of ambitious nations. He correctly asserts that we must be aware of how it has shaped the past because it will continue to have a pivotal role—for better and for worse—as we move into the future. Politicians take heed!”—Arthur Laffer, founder and chairman, Laffer Associates

A Splendid Exchange is really much more than a history of trade. In William Bernstein’s deft treatment, it becomes pretty much a history of the world. The age-old urge to profit by buying low and selling high led to empires, wars, trade restrictions, and—more recently—violent protests against economic and financial globalization. Bernstein’s vast knowledge of trade’s past is great preparation for dealing effectively with today’s controversies about its future.”—Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, and Professor of Economics, NYU’s Stern School of Business

“Financial theorist and historian Bernstein is equally at home plumbing the romantic dawn of trade or untwisting the mind-wracking complexity of modern international commerce . . . An excellent exposition of key factors in a perennial economic conundrum.”Kirkus Reviews (starred review)


Excerpted from THE DELUSIONS OF CROWDS © 2020 by William J. Bernstein. Reprinted with the permission of the publisher, Grove Press, an imprint of Grove Atlantic, Inc. All rights reserved.

Nearly two centuries ago, a young Scotsman named Charles Mackay simultaneously attacked the subjects of God and Mammon in memorable style. Born in 1814, he enjoyed a distinguished literary career as a popular poet, writer of ballads, and American Civil War correspondent and editor for British newspapers. But posterity remembers him best for his 1841 authorship, at the tender age of twenty-seven, of Memoirs of Extraordinary Popular Delusions, which narrated multiple historical episodes of mass mania, several of which had to do with either religion or money. It has been in print ever since.

Mackay chronicled the end-times delusions that supposedly gripped Europe as it approached the year A.D. 1000, as well as the remarkable religious madness of the Crusades. The book’s best known chapters, though, detail the financial mass delusions of the Dutch tulipmania of the 1630s and the twin stock market bubbles in Paris and London in 1719–1720. These episodes, which constitute the first three chapters, are what propelled the book to its long-lasting fame. Successive financial manias followed the book’s publication with such frequency, regularity, and global impact that, nearly two centuries after it was written, the book is still required reading among finance professionals.

Mackay was certainly not the first to intuit the contagious nature of human irrationality. Consider, for example, this passage from Herodotus:

When [Darius] was king of Persia, he summoned the Greeks who happened to be present at his court, and asked them what they would take to eat the dead bodies of their fathers. They replied that they would not do it for any money in the world. Later, in the presence of the Greeks, and through an interpreter, so that they could understand what was said, he asked some Indians, of the tribe called Callatiae, who do in fact eat their parents’ dead bodies, what they would take to burn them. They uttered a cry of horror and forbade him to mention such a dreadful thing. One can see by this what custom can do, and Pindar, in my opinion, was right when he called it “king of all.”

The Greeks, after all, were antiquity’s intellectuals, and Darius must have been tickled to box their rhetorical ears. His unspoken messages to the Greeks: You may be the most learned among humankind, but you are just as irrational as the rest of us; you are simply better at rationalizing just why, despite all evidence to the contrary, you are still right.

While the ancients and Mackay were well acquainted with human irrationality and popular manias, they could not know their precise biological, evolutionary, and psychosocial wellsprings. Mackay, for example, must have asked himself exactly why groups of people, from time to time, chase the same ludicrously overpriced investments en masse.

Today, we have a much better idea of how this happens. In the first place, financial economists have discovered that human beings intuitively seek out outcomes with very high but very rare payoffs, such as lottery tickets, that on average lose money but tantalize their buyers with the chimera of unimaginable wealth. In addition, over the past several decades, neuroscientists have uncovered the basic anatomic and psychological mechanism behind both greed and fear: the so-called limbic system, which lies close by the vertical plane that divides the brain between its right and left hemispheres. One symmetrically placed pair of the limbic system’s structures, the nuclei accumbens (singular: nucleus accumbens), lie approximately behind each eye, while another pair, the amygdalae (singular: amygdala), sit just under the temples.

Using functional magnetic resonance imaging (fMRI), researchers have found that the nuclei accumbens fire not only with reward, but even more intensely with its anticipation, be it culinary, sexual, social, or financial. In contrast, the amygdalae fire with disgust, fear, and revulsion. If, for example, you adore your aunt Flo’s lasagna, your nuclei accumbens and their connections will fire ever more rapidly on the way over to her house, and likely peak just as the aroma wafts from the serving dish. But as soon as the first bite is taken, their firing rate decreases, and if your aunt informs you upon arrival that she’s burned the dish, they will almost completely cease firing.

The benefit of an active anticipatory circuitry seems obvious; Mother Nature favors those who anticipate and strive, whereas the enjoyment of satiation, once achieved, offers little evolutionary advantage. And few things likely stimulate the nuclei accumbens as does the knowledge that some of those around us are becoming effortlessly wealthy. As economic historian Charles Kindleberger observed, “There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich.”

Novelists and historians have known for centuries that people do not deploy the powerful human intellect to dispassionately analyze the world, but rather to rationalize how the facts conform to their emotionally derived preconceptions. Journalist David Halberstam’s magisterial The Best and the Brightest illustrated how the nation’s most brilliant policy makers deluded themselves about American military involvement in Vietnam, a tendency once again evident; our recent foreign adventures suggest that we have not successfully climbed that particular learning curve.

Over the past several decades, psychologists have accumulated experimental data that dissect the human preference of rationalization over rationality. When presented with facts and data that contradict our deeply held beliefs, we generally do not reconsider and alter those beliefs appropriately. More often than not, we avoid contrary facts and data, and when we cannot avoid them, our erroneous assessments will occasionally even harden and, yet more amazingly, make us more likely to proselytize them. In short, human “rationality” constitutes a fragile lid perilously balanced on the bubbling cauldron of artifice and self-delusion so lucidly illustrated by Mackay.

Mackay’s own behavior demonstrated just how susceptible even the most rational and well-informed observers can be to a financial mania. Shortly after he published Extraordinary Popular Delusions in 1841, England experienced a financial mania that revolved around the great high-tech industry of the time, the railroad, which was even larger than the twin bubbles that swept Paris and London in 1719–1720. Investors, greedy for stocks, underwrote the increase in England’s track mileage from two thousand in 1843 to five thousand in 1848, and thousands of more miles were planned but never built when shares finally went bust. If anyone should have foreseen the collapse, it was Mackay.

He did not. During that mania, he served as the editor of the Glasgow Argus, where he covered the ongoing railroad construction with a notable lack of skepticism, and when he published the second edition of Extraordinary Popular Delusions in 1852, he gave it only a brief footnote.

Financial manias can be thought of as a tragedy like Hamlet or Macbeth, with sharply defined characters, a familiar narrative arc, and well-rehearsed lines. Four dramatis personae control the narrative: the talented yet unscrupulous promoters of schemes; the gullible public who buys into them; the press that breathlessly fans the excitement; and last, the politicians who simultaneously thrust their hands into the till and avert their eyes from the flaming pyre of corruption.

The promoters follow a classical Shakespearean tragic path and are consequently the most fascinating of the actors. Most begin as brilliant, hardworking visionaries who intuit before others the riches that a new technology will bestow upon society. In the process of bringing their visions to fruition, they grow rich and powerful and, in a capitalist society that judges men by their wealth, become their nation’s lions. When the speculation runs its course and bursts, they wind up disgraced and bankrupt and usually, but not always, narrowly escape the jailer.

The public proves easy pickings for the blandishments of the heroic, charismatic promoters. Competent investing requires a rare combination of mathematical ability, technological expertise, and, most critically, a working knowledge of economic history. Alas, people greatly prefer stories to data and facts; when faced with such a daunting task, humans default into narrative mode, and perhaps the most pleasing story of all is one that involves the effortless wealth to be had from buying into a new technology.

The press falls prey to the promoters in the same way as the public. Few things corrode journalistic excellence as the ease of writing about the revolutionary ventures of brilliant businessmen, who with alarming frequency grace magazine covers, first as heroes, then as accused felons.

Finally, financial manias sweep into their ambit politicians, whose reputations and popularity are enhanced by the economic prosperity that temporarily results from speculative excess, and who not infrequently get caught raiding the cookie jar.