Analysis: Bank disaster highlights Silicon Valley herd mentality

Luke Burgis at the Free Press appraises the recent shuttering of the Silicon Valley Bank and how “mimetic contagion” (rapidly spreading copycat behaviors) in the local tech industry played its part. Soon after several widely circulated Tweets blasted the SV Bank’s mismanagement of assets, $42 billion were hastily removed—in a single day. Below, Burgis’s examination on “the power of suggestion” at work.

The key to understanding how mimetic contagion works is the power of suggestion. As Iago demonstrated in Shakespeare’s Othello, it is only the mere suggestion of infidelity that sets off a string of reactions. It is the suggestion that someone is racist or x-phobic that causes extreme emotional distress—and many times real-life consequences. It is the mere suggestion that something that is or would normally be a minor risk which has the power to amplify that same risk and set off a reflexive process whereby perception becomes reality.

There are people who woke up on Thursday or Friday morning with deposits in SVB who withdrew their money in a panic—but the thought of doing that would never have crossed their minds had it not been first suggested to them on Twitter or by email or text. The power of suggestion cannot be overestimated.

In other words: the mimetic contagion has epistemic consequences. Being caught up in the process changes how we see reality. And it takes only a mere suggestion by the right person to put a panic into motion, one person at a time. It doesn’t matter whether the suggestion turns out to be true or false, or even the motivations of the person who made it. The effect is the same.

This article originally appeared in the Free Press. Read the whole thing here.

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