Colleagues here at FT HQ were – among other highbrow things – discussing the Abilene Paradox the other day (OK, so it was Lex, not us). It goes like this:
On a hot afternoon in Coleman, Texas, a family is comfortably playing dominoes on a porch, until the father-in-law suggests that they take a trip to Abilene [53 miles north] for dinner. The wife says, “Sounds like a great idea.” The husband, despite having reservations because the drive is long and hot, thinks that his preferences must be out-of-step with the group and says, “Sounds good to me. I just hope your mother wants to go.” The mother-in-law then says, “Of course I want to go. I haven’t been to Abilene in a long time.”
The drive is hot, dusty, and long. When they arrive at the cafeteria, the food is as bad. They arrive back home four hours later, exhausted.
One of them dishonestly says, “It was a great trip, wasn’t it.” The mother-in-law says that, actually, she would rather have stayed home, but went along since the other three were so enthusiastic. The husband says, “I wasn’t delighted to be doing what we were doing. I only went to satisfy the rest of you.” The wife says, “I just went along to keep you happy. I would have had to be crazy to want to go out in the heat like that.” The father-in-law then says that he only suggested it because he thought the others might be bored. The group sits back, perplexed that they together decided to take a trip which none of them wanted.
The point being that sometimes, individuals follow a lemming mentality – with no external rationale of its own – all eyes on the tail in front. That, suggests Michael Panzner with an interesting graphic on his blog, may be what’s happening with some key global “hot” markets:
Says Panzner:
While it is possible this convergence is either coincidental or reflects a series of overlapping fundamentals, another explanation is that there is a growing rush by trend-chasing traders into a core group of speculative favorites being fueled by their own momentum.
Road-trip, anyone?