Sitting on the plane yesterday on my arrival into Singapore, I was trying to work out why everyone stands with no where to go as they wait for the doors to open (happens all the time as everyone clearly knows). It occurred to me that cabin fever has probably got something to do with it–the need to escape. In comparing this phenomenon to the markets and cycles, maybe the same can be said, and maybe the reason for short coverers coming in, about a clear downtrend. Anxiety, the need for air, itchiness… all these things conspire to limit profits instead of sitting comfortably and waiting for larger gains.

Victor Niederhoffer writes:

Mr. Mee, this interesting idea has many hidden and untested assumptions in it, and I would think such a test would indicate a trade opposite from the one you seem to think would work.

George Parkanyi comments:

Holding a short position for the bigger move looks really obvious in retrospect when you look at any chart of a failed market. But markets, like all living things, do not like to die easily, and fight vigorously, at least until the latter stages when despondency sets in. Bear market rallies can be quite powerful. As you can tell from the ride from the top in this particular decline, the moves have been violent. Depending on where you enter, because of the volatility, profits– long or short– can vaporize right before your eyes. So you'll have to excuse the shorts for being a little paranoid. 

Craig Mee writes:

Sure George, no doubt that's why entry levels on moves are so important and most indicators lag so much that you come in too late. Most of these weak shorts are probably following the latter and their hands are forced with high volatility reactionary bounces, but for the ones positioned well … how many take their foot off the gas too early when they should be adding on the bounce, not liquidating, and what can help us, fundamentally or otherwise, establish this?

It was interesting that the high on the last bounce in equities was established during Asia and sold off during the U.S session. It appears the flight was landing in New York and everyone was up in the isle ready to run off the plane…what scared them so much that they ran and kept running? Maybe turbulence on the way, or they saw something scary in the mid flight sleep.

Jeff Sasmor writes:

money burning a hole in the pocketAnd you often see people lining up at the gate, even though they know they they can't board in the order of their line. They look annoyed as others board ahead of them. Personally I stay seated upon arrival till I can see some of the standees move. Drives everyone else in my family crazy though.

My dad used to call it "the money is burning a hole in your pocket" — the monkey urge to "do something". Explains to me why some days I have trouble sitting on my hands when my logical minds says no no no.

Bill Rafter writes:

For 13 years I commuted from my home in NJ to NYC, almost all of it by train. One thing that was always of interest is the way human traffic flowed down the staircases at Penn Station to the trains. Wind and water flow is almost always strongest in the middle of the stream. Not so with people. If you want to get to the train faster you are much better off by coming in from the periphery.

Somewhat the same happens in automobile traffic. A lane will be closed a click ahead and there will be signs to that effect. Many people immediately get out of the soon-to-be-closed lane, where the obvious choice is to remain in that lane as long as possible.

I am certain that both of these (the steps to the train and the closed auto lane) are the result of behavioral instincts, but so too is the market.

But my question for the list (particularly the international members) is if the human flow in different countries is different from that in the U.S. Is this behavioral tendency human or merely American?

Paolo Pezzutti replies;

 Bill, I would say that in Italy is pretty different and I find the pattern of traffic different in every country I visited. And I have visited many over the past 3 years. It seems that the culture of the peoples influences their behavior although on paper they have to follow rules on the road that are very much the same in the various countries across Europe and America at least. Similarly for markets, different cultures may give life to different types of herd behaviors. And I much believe it. In Italy, however, we tend to stay in the soon-to-be- closed lane as long as possible…

Did you have any doubt? I wonder what kind of herd behavior Italians would develop on the market and how this would be different from the Germans' way of managing the same situation for example.

Rudy Hauser writes:

herdlike behaviorMy experience on the LIRR at Penn and Jamaica stations in that a left flank approach works almost every time. When it comes to crowds most people seem to behave like a herd of sheep.

George Parkanyi adds:

Holding a short position for the bigger move looks really obvious in retrospect when you look at any chart of a failed market. But markets, like any living thing, do not like to die easily, and fight vigorously, at least until the latter stages when despondency sets in. Bear market rallies can be quite powerful. As you can tell from the ride from the top in this particular decline, the moves have been violent. Depending on where you enter, because of the volatility, profits - long or short - can vaporize right before your eyes. So you'll have to excuse the shorts for being a little paranoid.

Nick White writes:

Personally, off the plane, I just want to get to customs as soon as possible - and every little advantage in this quest helps. I think this is especially pronounced on the international flights I take, as they always tend to arrive at dawn - along with about 2 dozen other 747 / A380 flights full of punters. Nothing worse than sitting in that endless, spiraling queue at Heathrow. On this point, one of the best airport strategy expositions I've seen is the "Airport Security" scene in the brilliant George Clooney film, "Up in the Air".

I also fully agree with Paolo on the regional variations. I suppose, as everything, it depends on the incentive offered to "be first" - and whether such incentives weigh heavier from observance of social "rules of thumb" or conventions, versus a true, rational expectation and "doing what works".

Rocky– i HATE the tailgating thing. I always try to drive behind other cars with a good error margin relative to the speed of the traffic. Yet, in morning traffic, this safety margin ends up causing me deep and abiding road rage because opportunistic scum bags (*ahem*) keep plugging into my safety gap….this then makes me want to tailgate like crazy.

driving over the sydney harbour bridgeDriving over the Sydney Harbour Bridge in the morning presents some classic herding examples. There is one lane on the north-side approach toll gates that everyone considers "quickest". Yet, because so many people flock to this lane, one of the peripheral lanes often ends up being relatively traffic free and presents a much speedier option. This is probably a good analogy to the ever-changing cycles and market participants flocking to tired old relationship trades that may only be effectual because they believe it to be (I'm thinking Gold here) rather than any empirical reality behind the herd belief.

In the UK, you can count on people loving a queue and not trying to exploit the fast route. Trying to enter the tube doors from the periphery during rush-hour is usually a sure winner to come first in the seat-quest….however, it may earn you some opprobrium, too.

Universally though, I think in all instances we can count on the majority following convention and herding. The rest will be trying to game this instinct….sometimes successfully, other times getting slotted.

The markets are just an extension of regular life. The empirical, quant approach works in both, with the same limitations. I guess, ultimately, they are the same game of expectation - where those who best measure potential outcomes most likely end up with the shekels - or at least through the queue quickest!

Stefan Jovanovich comments:

The old (1970) NYC solution to Nick's dilemma in rush hour was to respond to any "challenge" — i.e. someone began pulling up on either side of your lane with the clear intention of cutting in– by acting like a cat with her food bowl. You simply lurched forward and closed up the space without showing any indication that you knew the other driver was there. Stupid indifference was a far more effective deterrent than any amount of threatening eye contact. (Of course, it helped to be driving a Checker Cab with fenders that already had multiple dents and scrapes. Even the Road Warriors behind the wheels of the Chevelle 454s owners didn't want to kiss metal with a road tank whose price at auction– less the medallion– would not have covered the cost of their engines.) 

Rocky Humbert writes:

Bill: A highway toll both model might also be one approach for understanding the Cabin Fever phenomenon. Traffic engineers have written extensively about the behavior of drivers as highways merge into toll booths.

One common observation is that drivers hate to have other cars cut-in in front of them, hence they tailgate — even if it's not productive and reduces the opportunity for more-productive lane switching. Might standing in the aisle be an airplane equivalent of tailgating?

Spann, et al: Lane changes and Close Following, UMAP Jrl (2005) [14 page pdf]

Personally, I stand in the aisle because it's a pleasure to stretch my legs and spine after sitting for hours in an uncomfortable airplane seat. Entirely rational.There's probably a cultural aspect too. While in Frankfurt, I was caught in a downpour and crossed a busy street against the light in a futile attempt to save my suit from ruin. Two residents started yelling at me in hostile German for this infraction. Perhaps I would be rotting in prison right now if I had jay-walked too! 

Tim Hewson writes:

 One thing I have read is people do most unusual things in aircraft emergencies, such as try to secure their belongings to take with them even though their lives may be in danger and the priority should be to get out pronto.
So irrationality in transport situations is not any more unusual then in market situations. And its also understandable. Going to a spec party a few years ago the plane I was on had to turn back an hour over the Atlantic as the hydraulics went and the cabin filled with smoke and people were screaming, etc. It's not a very nice experience. But I would recommend observing the air hostesses: if they appear calm it's probably ok for you to continue reading your newspaper. If you can't see them or they look panicked you might as well continue reading your newspaper because there is nothing you can do.

On the subject of crowd behavior on train stations: Escalator etiquette in most countries tends to match the rules of the road. So why do passengers on the London Underground stand on the right-hand side of escalators when the rules of the road dictate that we drive on the left?

Jim Wildman comments:

At one point I commuted 115 miles each way to work between Tyler, TX and Dallas on I20. Most of the time, traffic out in the country where there was little traffic traveled within 5 MPH of the speed limit. Once I got to more congested areas, there were more speeders. Of course the congestion meant speeding was thrilling, frustrating and ultimately useless. I assumed those speeding felt better at all the cars they were passing. Activity substituting for progress. 

Scott Brooks writes:

Speaking of panic on a plane….

I was flying on a Southwest Airlines flight back in 2001 when we hit the worst turbulence I had ever experienced (times 10). The plane was bucking, like a bull with unwanted rider on his back, the people that were unfortunate enough to be standing were tossed around like rag dolls. The stewardess barely made it back to her "stewardess seat".

People we screaming and crying in fear.

I was sitting in the front of the plane in one of those seats where the person in front of you is facing you (I think you only see that on LUV planes). The faces of the people in my row were ashen with fear. I looked around to do a mental calculation of the exits and noticed the stewardess. It was not a good sight. She was obviously terrified.

It was at that moment that I decided to do the unexpected. I raised my hands over my head, put a big smile on my face and started screaming, "Roller coaster, roller coaster, Wahoooo!", over and over again.

It took a few seconds for the people in my area to catch on, but when I yelled at them, "Come on, roller coaster with me, roller coaster, roller coaster", they began to join in.

I looked across the aisle at those people and started screaming the same thing, within a couple of seconds they were joining in. I told them to pass it back in the plane. We then yelled at the people behind and told them to pass it back. It was then I saw the stewardess. She was not only scared to death, but she was livid with anger towards me. She was screaming, "Stop it, stop it".

But it was too late….like "The Wave" at the ball park, it took over the whole plane and pretty soon most of the people on the plane were "roller coaster-ing" with us.

I smiled at the screaming stewardess, and I think I mouthed the words (don't remember exactly), "it's ok". She calmed down and bit.
I then started yelling "roller coaster" to her and after a few seconds, she joined in.

Of course, eventually the turbulence subsided and slowly went away.

As it lessened, people started laughing and applauding. Personally, I felt something I had never felt before to this extent…….the exhilaration of the adrenaline rush associated with fear coupled with the joy and relief associated with the removal of the danger, all mixed together with the "shakes" associated with such fear. I felt the sweet and sour sauce of emotions….joy and fear at the same time!

The plane was abuzz with excitement and all forms of emotion!

A few minutes later the Captain even came over the loud speaker to explain what had just happened. I don't remember exactly what he said next, but he basically said something along the lines of never having had an entire group of passengers do the "roller coaster" before and he thanked the gentlemen in the front who had started the roller coaster. He then offered to go back to where the turbulence was so we could do it again.

His offer was met with a resounding, "NO!" and laughter.

I'm sure every passenger on that plane will remember that 5 or so minutes of that plane ride for the rest of their lives.

George Parkanyi replies:

Scott, great story, and an important leadership dynamic involved.

In a situation over which people have little control, particularly dangerous situations, there is huge psychological benefit in giving them something to do. It alleviates the helplessness and gives back some feeling of control that can be the difference between reason and panic. Throwing their hands up and chanting "roller coaster" in coordinated fashion gave them that something to do, and also provided comfort from a "we're in this together" sense of community.


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