J. Harold Mulherin

J. Harold Mulherin is a finance professor whose research with Michael T. Maloney examined the market’s response to the Space Shuttle Challenger disaster. Their case study gives him a role in the book’s inquiry into collective judgment: investors sharply distinguished Morton Thiokol from the other contractors before public reporting had identified the company’s responsibility, yet the researchers could not establish exactly how the market reached its conclusion.

Research on the Challenger Disaster

On January 28, 1986, the Challenger exploded shortly after liftoff. Investors began selling shares in companies involved in the launch, but Morton Thiokol, which built the solid-fuel booster rocket, suffered a markedly different decline from its competitors. Trading in Thiokol was halted almost immediately amid intense selling and little interest in buying. When trading resumed nearly an hour after the explosion, the stock was down 6 percent; by the close, its loss had nearly doubled to almost 12 percent. The shares of Rockwell International, Lockheed, and Martin Marietta, by contrast, recovered some ground and ended the day down around 3 percent.

Maloney and Mulherin treated this divergence as evidence that the market had singled out Thiokol as especially vulnerable to the disaster’s consequences. The stock price did not merely register a general shock to the aerospace industry: compared with the other contractors, Thiokol’s much steeper fall implied that investors expected its financial prospects to suffer more severely. The researchers’ account made the market’s relative judgments, rather than the overall downturn alone, central to the case.

The Market’s Judgment and Its Explanation

That judgment preceded any public explanation that clearly implicated Thiokol. The next morning’s New York Times article mentioned rumors, but neither rumor named the company; the paper reported that there were no clues to the accident’s cause. Six months later, the Presidential Commission on the Challenger identified the failure of O-ring seals made by Thiokol. Cold weather had reduced the seals’ resilience, allowing hot gases to escape and damage the main fuel tank. The commission’s findings held Thiokol liable and exonerated the other companies, matching the distinction investors had drawn on the day of the explosion.

The researchers investigated whether informed insiders could account for the early price movement. Their review found no evidence that Thiokol executives had sold shares that day, or that executives at competing contractors had traded against Thiokol while buying the other firms’ stocks. That absence undercut the straightforward explanation that people with direct knowledge had caused the initial drop. The striking result was that the stock had been shunned by investors, most of whom were relatively uninformed, without a clear pattern of insider selling to explain their behavior.

Maloney and Mulherin could not provide a convincing account of why investors avoided Thiokol’s stock. In the end, they assumed insider information had driven the decline, while acknowledging that they could not explain how. Their unresolved question lends the episode its analytical tension: the market’s assessment proved accurate, but the path from scattered information to that accurate assessment remained obscure.

Significance in the Book

The episode supports the book’s argument that a group can arrive at a sound judgment even when its members do not individually know the answer. Shareholders and potential shareholders were making decisions about the value of Thiokol and its competitors after the explosion; the aggregate, expressed through stock prices, pointed toward the company later found liable. The case does not establish that every market judgment is reliable, or that traders consciously understood the cause. It instead shows how the collective result may contain more information than any one participant can articulate.

The uncertainty surrounding the market’s mechanism is as important as its apparent success. Maloney and Mulherin’s study records the limits of what researchers could explain, even when the outcome could be compared with a later investigation. In the book’s account, the Challenger episode therefore offers both a vivid instance of collective accuracy and a caution against mistaking a correct result for a fully understood process.