Building on my criticism in yesterday’s post, half of the people in this NPR experiment were asked to view three animals and pick the cutest; the other half were asked to pick which one they thought everyone else would think is the cutest. The results are below. The authors point out that this isn’t a new analogy, with Keynes having observed in 1936 that the stock market runs like a beauty contest. It’s an interesting example of how individual preferences can differ so much from social choices.

In the market, Keynes argued, it doesn’t make sense to invest in the company you think is best. It makes sense to invest in the company that you think other people will think is best. Because if everyone else invests in a company, the price of its stock will rise.

Of course, when everyone does this, it leads to a slippery investment world. “We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be,” Keynes wrote.

Pietra Rivoli, a professor at Georgetown’s business school, explains the problem with a market like this: “The key danger is that nobody’s really thinking.”