Restaurant bubbles

There are two restaurants in a town, the Ritz and the Savoy. Albert does not much mind which one he goes to but chooses the Ritz. Ben, coming next, is leaning slightly towards the Savoy but, seeing that Albert is at the Ritz, decides that it must be better. Catherine is also persuaded by Albert and Ben’s choice that the Ritz must be the place, and so is David. By the time we get halfway through the alphabet, to Mary, everybody has chosen the Ritz and nobody the Savoy. But then Neville, who is next, has a very strong preference for the Savoy, partly because the Ritz is by now very crowded. Olivia, seeing Neville’s choice, follows him, so does Peter, and so do the rest, right through to Zak. And then something strange happens. Halfway through their meal, all those who chose the Ritz hear that everybody else is going to the Savoy. They leave, in a rush, to go from one to the other, to the Ritz’s chagrin. Think of all those who initially chose the Ritz as people who invested in dot.com shares during the late 1990s, or the rush by banks and other institutions into dodgy mortgage-backed securities in the 2000s, and then think of the rush to get out as they realised they had invested in worthless companies or securities, and you have a pretty good analogy for how bubbles build up and are burst.

Albert’s nearly indifferent choice of the Ritz becomes evidence for Ben. Ben’s imitation becomes stronger evidence for Catherine. Very quickly, one shrug has acquired several witnesses.

Catherine sees two people. David sees three. By Mary, a queue of copied decisions has acquired the appearance of independent judgement.

Then Neville chooses the Savoy. Olivia follows. Soon diners abandon the Ritz because “everyone” is moving, including people whose earlier presence created the evidence that the Ritz was best.

This is a bubble rendered as a seating plan. Popularity tells each person something, yet the signal contains previous people responding to the same signal. Count the diners and it looks like thirty endorsements. Trace the sequence and much of the information began with Albert shrugging.

Following a crowd can be sensible. Other people may know the chef, the prices or the food. The difficult question is how much private evidence remains inside the visible total.

Ask the early arrivals why they chose. Separate direct experience from “it looked busy”. Write down your own view before seeing the queue. Once movement reverses, apply the same suspicion to the exit; panic can copy itself too.

Halfway through dinner, plates are left on tables at the Ritz. The Savoy suddenly has a waiting list. Nobody has tasted the other restaurant yet.

The crowd count cannot reveal how much private knowledge it contains. Thirty visible choices may represent thirty judgements, or one shrug copied twenty-nine times. Popularity hides its genealogy extremely well.