Birds and the Wisdom of the Crowds
As a kid I used to blow soapy water to make bubbles into the air and then I watched them flying in the air and finally it broke. Recently I bought special bubble water from a local toy store for George. I taught him how to blow bubbles. The bubbles George made seemed much bigger than the ones I used to make. No matter how careful we are about bubbles, they will break eventually.
Another natural phenomenon like bubbles is flying-birds in a dense group. I have seen hundreds or maybe thousands of birds flying in a large group. The boundary of the flying birds group is very smooth and continuous. It looks like a giant bubble in a way. It quickly goes up and down in the air as the birds are coordinated together making the beautiful changing shapes.
Another bubble which investors are often referring to is the stock market bubble. When more and more investors are coming to the market to do similar investments, the market price goes up and all the way to the roof. Then the market price goes down quickly. Some investors loose their investments. The most recent case was the year 2000 U.S. stock market bubble.
When I put together the soapy water bubbles, the flying-birds bubbles, and the stock market bubbles, I tend to see the similarities among them. I can see clearly how the soapy water bubbles breaking into clear water vapors. I can also physically observe the flying-birds bubble landing on the trees when the perceived flying-birds bubble suddenly disappearing. I could not physically see how the crowds of investors coming to the stock market. But I can imagine how they can become coordinated in moving the market into the bubble zone.
In the soapy water bubble, the water molecules are connected together via capillary force to form the bubble. When the air is steady and mild, the bubble can stay live for quite a while. When the air is very turbulent and windy, the bubble can break into pieces in a short time. When the bubble touches some non-air boundary, especially the sharper edges, the bubble disappears very soon. The capillary force which connecting the water molecule is very weak. Any strong imbalance in the pressures inside the bubble and outside the bubble will cause the bubble to break. Although it is intuitively easy to feel the process for the bubble to break, it is very difficult to model the exact movement of the bubble and the exact time when the bubble will break.
In the flying-birds bubble, I do not know the exact mechanism for the birds to coordinate with each other to form the smoothly round shapes when they are flying together. I can be confident to know that it seams easy for them to coordinate with each other when they are flying. However, the smoothly round shape can not be maintained when they are landing on trees. When they are landing on the trees, their coordinated efforts become vanished. The coordination force is replaced by the needs of the individual birds to land accurately on the trees.
In the stock market bubble, the mechanism is the coordinated investment decisions made the participating investors. Although there is no real coordinator in the operation, the wisdom of the crowds is almost evenly distributed among most investors. If most of the participating investors share the common wisdom of the crowds, then the coordination is almost automatic.
I have seen this kind of automatic response when I feed fish with bread pieces in a pond. When I through the bread pieces onto the pond, I can feel almost all fish are jumping at the bread pieces at the same time. A water splash is caused by such sudden actions of the fish in the pond.
Actually, the shared wisdom of the crowds is conditional. The condition is that every investor can make money. If that condition is changed, this wisdom of the crowds can vanish quickly. It just as it depicted in the year 2000 market crash. This condition is very similar to the capillary force in the water bubbles.
Another natural phenomenon like bubbles is flying-birds in a dense group. I have seen hundreds or maybe thousands of birds flying in a large group. The boundary of the flying birds group is very smooth and continuous. It looks like a giant bubble in a way. It quickly goes up and down in the air as the birds are coordinated together making the beautiful changing shapes.
Another bubble which investors are often referring to is the stock market bubble. When more and more investors are coming to the market to do similar investments, the market price goes up and all the way to the roof. Then the market price goes down quickly. Some investors loose their investments. The most recent case was the year 2000 U.S. stock market bubble.
When I put together the soapy water bubbles, the flying-birds bubbles, and the stock market bubbles, I tend to see the similarities among them. I can see clearly how the soapy water bubbles breaking into clear water vapors. I can also physically observe the flying-birds bubble landing on the trees when the perceived flying-birds bubble suddenly disappearing. I could not physically see how the crowds of investors coming to the stock market. But I can imagine how they can become coordinated in moving the market into the bubble zone.
In the soapy water bubble, the water molecules are connected together via capillary force to form the bubble. When the air is steady and mild, the bubble can stay live for quite a while. When the air is very turbulent and windy, the bubble can break into pieces in a short time. When the bubble touches some non-air boundary, especially the sharper edges, the bubble disappears very soon. The capillary force which connecting the water molecule is very weak. Any strong imbalance in the pressures inside the bubble and outside the bubble will cause the bubble to break. Although it is intuitively easy to feel the process for the bubble to break, it is very difficult to model the exact movement of the bubble and the exact time when the bubble will break.
In the flying-birds bubble, I do not know the exact mechanism for the birds to coordinate with each other to form the smoothly round shapes when they are flying together. I can be confident to know that it seams easy for them to coordinate with each other when they are flying. However, the smoothly round shape can not be maintained when they are landing on trees. When they are landing on the trees, their coordinated efforts become vanished. The coordination force is replaced by the needs of the individual birds to land accurately on the trees.
In the stock market bubble, the mechanism is the coordinated investment decisions made the participating investors. Although there is no real coordinator in the operation, the wisdom of the crowds is almost evenly distributed among most investors. If most of the participating investors share the common wisdom of the crowds, then the coordination is almost automatic.
I have seen this kind of automatic response when I feed fish with bread pieces in a pond. When I through the bread pieces onto the pond, I can feel almost all fish are jumping at the bread pieces at the same time. A water splash is caused by such sudden actions of the fish in the pond.
Actually, the shared wisdom of the crowds is conditional. The condition is that every investor can make money. If that condition is changed, this wisdom of the crowds can vanish quickly. It just as it depicted in the year 2000 market crash. This condition is very similar to the capillary force in the water bubbles.
posted by Unknown at 7:52 PM
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