275. The Madness of Crowds feat. William Bernstein

TL;DR

In this interview, investment manager and author William Bernstein discusses the historical books he has written, focusing on topics such as the creation of prosperity, the shaping of the world through trade, and the delusions of crowds in financial bubbles and religious extremism.

Transcript

foreign brought to you by alumni FM connecting people through stories welcome to unsilid this is Greg LeBlanc and I'm here with William Bernstein who is well he is an investment manager but also the author of a number of books uh you've written a number of books on investment including the intelligent asset allocator the four pillars of investing r... Read More

Key Insights

• 📚 The Birth of Plenty, A Splendid Exchange, and The Delusions of Crowds are some of the books written by William Bernstein, an investment manager and author.
• 💡 The Delusions of Crowds discusses group insanity, including religious extremism and financial bubbles, which overlap with the field of behavioral finance.
• 😲 Curiosity and being a lifelong learner can help immunize individuals against manias and delusions.
• 📚 Bernstein's book merges neuropsychology, social psychology, evolutionary psychology, financial economics, and history to explore human nature and the origins of delusions.
• 🤔 Rationality and intelligence are orthogonal, meaning that intelligence does not guarantee rational decision-making.
• 🌍 The prosperity of the modern world and the creation of wealth are topics covered by Bernstein in his historical books.
• 🔍 Confirmation bias and the power of narratives play a significant role in shaping people's beliefs and behaviors.
• ⚖️ The media's influence on public knowledge and opinion can be significant, and media structure may impact the spread of delusional beliefs.
• 🔒 Critical thinking skills, sound media literacy, and the regulation of algorithms and advertising can help mitigate the spread of delusions and prevent susceptibility to bubbles and extremism.

Questions & Answers

Q: How does the author juggle his roles as an investment manager and a polymath who writes about various topics, including history and psychology?

William Bernstein, an investment manager and author, explains that he has always had a restless curiosity and a thirst for knowledge. Though he practiced medicine for many years, he found that pursuing history and psychology for their own sake brought him pleasure. While he did not write about medicine because he spent a significant portion of his life practicing it, he still enjoys learning about other fields and exploring various subjects.

Q: According to the author, what are some common characteristics of intelligent individuals and the role of rationality in decision-making?

Bernstein states that intelligence and rationality are two distinct traits and are not necessarily correlated. While rationality and intelligence can exist independently, he believes that rational individuals who make decisions based on facts and evidence are more reliable than those who are highly intelligent but not rational. He cites examples of individuals who were intelligent but not rational, such as Donald Rumsfeld and Ronald Reagan, to support this point.

Q: How does the author explain the prevalence of group insanity and the vulnerability of intelligent people to delusions and extremist beliefs?

According to Bernstein, intelligence and rationality are not necessarily connected, and individuals who are highly intelligent can still fall victim to delusions and extremist beliefs. He explains that rationality comes from the newer part of the brain, called system two, which often succumbs to emotionally derived conclusions made by the reptilian, older part of the brain, known as system one. He cites examples of intelligent people, such as religious fanatics and bubble participants, who exhibit irrational behavior, illustrating that intelligence does not prevent delusions.

Q: How does the author highlight the role of narratives in shaping beliefs and behaviors, particularly related to end-of-the-world narratives?

Bernstein emphasizes that humans are narrative animals and understand the world through stories, rather than data or facts. He explains that compelling narratives, such as those about the end of the world or effortless wealth, can overpower rationality and attract individuals. These narratives tap into deep-seated human instincts related to survival, storytelling, and seeking social status. He also provides examples of how different religious narratives, including those from the Abrahamic religions and Eastern religions, share similarities in their end-times beliefs.

Q: How does the media influence the formation and spread of narratives and delusions?

The author argues that the media plays a significant role in promoting narratives and sensationalism, driven by the pursuit of advertising revenue. He highlights the importance of critical thinking skills for individuals in navigating media and distinguishing reliable sources. Bernstein also discusses the potential benefits of state-run media that focus on providing accurate information rather than sensationalism, as seen in Scandinavian countries, where citizens are generally better informed.

Q: Can individuals be immunized against falling prey to extremist beliefs and financial bubbles?

The author suggests that while critical thinking skills can be taught to some extent, it is challenging to change individuals' susceptibility to narratives and delusions. He emphasizes the need to tone down sensationalistic private media and prioritize independent state-run media to provide reliable information. Additionally, he believes that algorithmic optimization, which promotes sensational content, should be curtailed to prevent the rapid spread of false narratives. Overall, while education and media regulation can help, complete immunization against extremist beliefs may be challenging to achieve.

Summary & Key Takeaways

• William Bernstein has written several books on investment, but in this interview, he discusses his historical books, including "The Birth of Plenty," "A Splendid Exchange," and "The Delusions of Crowds."

• His books explore topics such as the creation of prosperity in the modern world, the influence of trade on shaping history, and the delusions and group insanity in financial bubbles and religious extremism.

• Bernstein shares insights on human nature, the power of narratives, the role of intelligence and rationality, and the prevalence of end-of-the-world narratives across different religions.