What explains Bernanke’s caution as Fed chair? This column argues that one possible factor is ‘groupthink’, where individuals go along with what they perceive as the majority view. Many of the Fed’s features – its tradition of decision-making by consensus, limited interaction with outsiders, and atmosphere of camaraderie – encourage groupthink. And Bernanke’s personality, often described as modest and unassuming, may have reinforced the effects of groupthink.

The public is overreacting to the current turmoil in financial markets. The turmoil is most likely a situation where very specific problems are spread out extensively across investors and countries and thus the defaults are benign.