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Business students chase the last wave
Who ends up there
The cohort is made up of people who are super extroverted, generally low on convictions, and short on ideas, put together in a hothouse environment for two years. By the end, the largest group heads toward whatever just worked.
The waves they chased
In 1989, everyone at Harvard tried to work for Mike Milken, one or two years before he went to jail over the junk bond business. They had no interest in Silicon Valley or tech until 1999 and 2000, when they timed the dot-com bubble's peak perfectly. From 2005 to 2007 the wave was housing and private equity.
Advertising's pull
The pull toward treating competition as validation reaches well past business schools and Wall Street. People think of advertising as something that works on other people, yet it works to a disturbing extent on everyone.
Why do people crowd into the same hot field?
Economists model this as herding. In a 1992 paper, Sushil Bikhchandani, David Hirshleifer, and Ivo Welch showed that when people watch what others choose, each can rationally set aside their own information and copy the crowd. After a few people choose the same way, later decisions stop adding information. The result is a cascade that can run in the wrong direction as easily as the right one.
How big was the dot-com crash?
The Nasdaq Composite peaked on March 10, 2000, at above 5,000. By October 2002 it had fallen by about 78 percent. Many internet companies that went public in the late 1990s ran out of cash or were sold for a fraction of their peak value.
How does advertising work on people who dismiss it?
Psychologist Robert Zajonc described the mere exposure effect in a 1968 paper. His participants saw meaningless words and symbols different numbers of times, and rated the ones shown more often as more positive. The shift happened with no persuasion and no argument. Repetition alone moved their preferences.
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