MiB: Bill Bernstein on the Delusions Of Crowds



This week, we welcome back William J. Bernstein, Ph.D., M.D. (See our 2019 MiB) He is a retired neurologist, principal in the money management firm Efficient Frontier Advisors, and author of several best-selling books on finance and history. He was the winner of the 2017 James R. Vertin Award from CFA Institute. His new book The Delusions Of Crowds: Why People Go Mad in Groups was just published.

He discusses how the vectors and mediums of “infections” that lead to mass delusions. He explains why people are “cognitive misers,” with narratives as causative agents. The more compelling a narrative is the more corrosive it is to our analytical abilities. Two of the most compelling narratives: Apocalyptic “End of Days” stories, and “effortless riches.”

Bernstein notes the Manichean philosophy of simple “duality” — everyone or thing is either good or evil. This binary approach to reality with no shades of grey is a vast oversimplification — effective in keeping us alive on the savannah, but causing trouble in the modern capital markets.

The human Limbic system is “everything. To the extent you succeed in finance, you succeed in finance by suppressing the limbic system, your system 1, which is the the very fast moving emotional system. If you cannot suppress that, you are going to die poor.”

From an evolutionary perspective, there is very little cost to our “patternization” — false positives carry no cost, but false negatives carry the ultimate cost. It also makes sense that we attend more to bad news, while ignoring good news. To the modern investor, both of these evolutionary traits lead to expensive errors.

A list of his favorite books are here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Jeff Immelt, former CEO of General Electric from 2001 to 2017. Immelt joined GE in 1982, in GE’s plastics, appliances, and healthcare businesses, and spent over 35 years with the company leading GE’s Medical Systems division from 1997 to 2000. His new book is: Hot Seat: What I Learned Leading a Great American Company.




William Bernstein Favorite Books

The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous by Joseph Henrich


Expert Political Judgment: How Good Is It? How Can We Know? by Philip Tetlock


Auschwitz: A New History by Laurence Rees



Books Barry Mentioned

Pop!: Why Bubbles Are Great For The Economy by Dan Gross



William J. Bernstein’s Authored Books

The Delusions Of Crowds: Why People Go Mad in Groups by William Bernstein

A Splendid Exchange: How Trade Shaped the World by William Bernstein

The Birth of Plenty: How the Prosperity of the Modern World was Created by William Bernstein

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William Bernstein

If You Can: How Millennials Can Get Rich Slowly by William Bernstein

The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between by William Bernstein

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William Bernstein

Rational Expectations: Asset Allocation for Investing Adults by William Bernstein

Masters of the Word: How Media Shaped History by William Bernstein



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