From Morgan Housel at Collaborative Fund:
Sociologist Duncan Watts once wrote: “[Common sense says] that when people make decisions about what they like, they do so independently of one another. But people almost never make decisions independently — in part because the world abounds with so many choices that we have little hope of ever finding what we want on our own; in part because we are never really sure what we want anyway; and in part because what we often want is not so much to experience the ‘best’ of everything as it is to experience the same things as other people and thereby also experience the benefits of sharing.”
The idea that people like (or hate) what other people like (or hate) is important, because it lets small ideas grow bigger than you’d guess if you assume everything is ranked by quality alone. Social momentum is hard to model on a spreadsheet, so it’s hard to predict or think about in terms that seem rational. But it’s so powerful.
Attention is hard to obtain. But once it’s achieved it can take on a life of its own, becoming self-sustaining and able to morph into something you never imagined.
Once you look for feedback loops you see them everywhere. And once you realise how powerful they can be, you start to answer some of the most frequent questions in business and investing. How did prices get this high? How did that company fall so hard? How has this trend lasted so long? Why is that company so dominant? Why is the market so volatile? Why is this person so famous? Why is it so hard to break through?
The reason is usually small trends, once they get going, take on a life of their own, so things are usually crazier than you’d expect.
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