Bubbles and crashes are textbook examples of collective decision making gone wrong. In a bubble, all of the conditions that make groups intelligent - independence, diversity, private judgement-disappear.

We assume that good-looking people are smarter and more effective than they really are, and that homely people are the reverse.

There are certainly valid reasons for taking a company private, and it's also possible that C.E.O.s perform better when monitored by a small number of owners in a private company rather than by the dispersed and often uninterested shareholders of a public corporation.

Companies, like people, don't much like to change.

This intelligence, or what I'll call "the wisdom of crowds," is at work in the world in many different guises. It's the reason the Internet search engine Google can scan a billion Web pages and find the one page that has the exact piece of information you were looking for. It's the reason it's so hard to make money betting on NFL games, and it helps explain why, for the past fifteen years, a few hundred amateur traders in the middle of Iowa have done a better job of predicting election results than Gallup polls have.

Corporations hope that the right concept will turn things around overnight. This is what you might call the crash-diet approach: starve yourself for a few days and you'll be thin for life.

All things being equal, letting people make decisions for themselves will produce smarter outcomes, collectively, than relying on government planners.