No warning.

When the Sensex crossed 21000 last year, I remember hearing some feeble voices say that the aggregate price-to-earnings ratio of the Indian stock market was unsustainably high. But such voices were soon drowned in the general euphoria.

How can a galaxy of distinguished economists and analysts fail to see the imminent crash? When oil prices touched $140 a barrel, how come nobody could see that it would roll back very soon and touch $60?

With so many analytical tools in the armoury, why weren’t there stronger warnings that the housing bubble was just that- a bubble? And why didn’t a consensus of economists at universities and other institutions warn that a crisis was on the way? Why weren’t any small boys observing that the Emperor wasn’t wearing clothes?

The field of social psychology may provide some answers, says Robert Schiller in this article. . He cites a 1972 classic, “Groupthink,” by Irving L. Janis, the Yale psychologist, that explained how panels of experts could make colossal mistakes. People on these panels, he said, are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms to apparent assumptions held by the group.

To go against the grain or to take a contrarian position is to risk being thrown out of the group. Evolution favoured group behaviour and this instinct still keeps ticking in us, even the experts amongst us.

So, the lesson is that we will never be forewarned of any impending disaster or, for that matter, tipped about an upturn. So, just relax and enjoy the ride.