Of boids and bubbles

[small_far_ugly]

OK, this is a bit off the beaten path....

There's a flocking simulaor out there called boids. It's been very successful, and is used just about every time you see a digitized school of fish, or flock of birds on a movie because it models them quite accurately.


See it here: http://www.red3d.com/cwr/boids/

It's based on the idea that several individuals in a group behave according to certain steering rules. In a nutshell, copied from wikipedia, the rules are:

* separation: steer to avoid crowding local flockmates
* alignment: steer towards the average heading of local flockmates
* cohesion: steer to move toward the average position of local flockmates

http://en.wikipedia.org/wiki/Boids

They all, by the way, only pay attention to their immediate neighbors, and on a macro scale emerges this broad and coherent order.

Now when I saw this, I immediately thought of the housing situation in Seattle. In the boids model, the individuals all act towards a common goal -- avoiding a predator for example.

Humans obviously don't work this way. This fits hand in hand with the thinking that so much of the buying of real estate is emotionally driven. If humans behaved like boids, the "flock" (potential real estate consumers) would obey rules guided at a single goal: price reduction. So the analogues to the original rules would probably be geared towards avoiding overpopulation and overdemand.

Humans don't do this because when it comes to real estate, following flocking rules involves working against your self interest. For the money, you want the best house, neighborhood, and school district available.

So this model isn't accurate for real estate, but one thing I think we can take away from it is that there is a bubble if people decide there is. This will be, like boids, based on interactions with people close to you. If your buddy has a hard time selling, maybe it signals you not to buy.


The real estate industry already knows this, and this is why the propaganda from people like Aubrey Cohen is much more than an annoyance. People should recognize this cheerleading as more than desperate -- it's market manipulation in a very real way.


For more on this type of thing, more related to people, see the book The Wisdom of Crowds

[Jay]

[small_far_ugly]

You're right, greed has played into every major market bubble. And the guys who buy at the peak are caught up in a special brand of greed -- it reminds me of when I was a kid playing baseball. I'd sometimes see a perfect, slow changeup coming right down the middle of the plate and just freeze. If I turned on it, it was getting cranked DEEP. But I froze. And immediately regretted it. Because I wanted THAT pitch (but no pitcher worth his rosin bag makes the same mistake twice) I ended up swinging wildly at anything.

So people buying now are kicking themselves for not buying in 2003, even though the market conditions are entirely different. They're largely flailing at wild pitches to make up for lost opportunity.