Rational Irrationality

Recently I finished the book "Manias, Panics and Crashes" by Charles P. Kindleberger.

A bit out of the league for me. Half of what he says I don't understand, and he analyse each crisis as if the reader already has some background knowledge(which I don't).

Nonetheless, there is a particular piece that caught my attention regarding the economics of a free market.

"...individual actors all act rationally but in combination produce an irrational result, such as standing to get a better view as spectators of sport, or, more dramatically, running for the exit in a theater fire."

Quite interesting. Seems to be in direct contrast to the invisible hand at work.

Minsky was also introduced, with the theory that crises are always caused by an external event.

Another point is that easy credit is almost always a precursoer to crises. Which is what is happening now.


Speaking of irrationality, I really have no idea why the STI and Nikkei rose so dramatically just because it is the start of the (Chinese) new year. I mean, over the festive period, more and more bad news on unemployment, export figures and retrenchment are bubbling up yet stocks climbed rapidly when the market opened.

I dunno, perhaps it's due to orders that are not executed before the market closed on the previous working day? Or maybe too many people placed orders over the weekend when they thought the market at the close seemed to be attractively priced.