Everyday SurvivalWhy Smart People Do Stupid ThingsBy Laurence GonzalezWW Norton $25.95, £15.99As Wall Street struggles to find some respite from the carnage, the international financial system appears to be running on survival mode.

We live in alarming times, when all financial institutions are operating in a climate of fear and uncertainty. Should we view failures such as those of Lehman's, HBOS and Bradford & Bingley as inevitable in a sharply declining market, or could managements plan survival strategies robust enough to tide them over the worst times?

The answers are Yes and Yes, writes Laurence Gonzales, in Everyday Survival, Why Smart People Do Stupid Things. As many of the stories in his new book reveal, there can be a grim inevitability to the kind of disasters that befall both people and companies when business turns sour. This happens when otherwise right-thinking people become fixated like lemmings on the tail of the one in front. Ordinarily we know how to think for ourselves but in a group with a defined identity, the scope for single-minded thinking is drowned in a well of conformity.

Gonzales argues that people court disaster because their behaviour is following a pre- programmed script that does not account for the unexpected or unfamiliar.

When carmakers began to fit airbags as a safety device in the early 1990s a number of fatalities among infants in front seats led to a recommendation that babies be strapped in the rear. Sadly, out of sight meant out of mind in some tragic cases, when infants were forgotten by their parents who left them in hot cars on sunny days. Between 1990 and 1992 when car airbags were rare, only 11 such deaths were recorded in the US. But between 2003 and 2005, when almost all new cars had airbags, some 119 children died from being left in cars.

The arrival of a baby, writes Gonzales, means parents must create "new mental models and behavioural scripts" for themselves. Changes in business, like changes in families, initiate a need for deliberate thought. It is the consciousness of this need, he writes, that can differentiate survivors from victims.

Had Intel Corporation continued to pursue its original business, making computer memory chips, it would almost certainly have foundered as low-cost Japanese competition transformed computer memory into a commodity.

But engineers at Intel had invented the microprocessor chip, which could still be sold at a profit. The potential was clear but Intel's directors and senior management had a fixed image of the company as a memory chip business, writes Gonzales. Such fixations are underpinned by conventional management theory dictating that companies concentrate on their core products and services. "We had lost our bearings," admitted Andy Grove (pictured), Intel's chief executive, afterwards. "We were wandering into the valley of death."

US mortgage lenders lost their bearings in much the same way before subprime mortgage defaults led to a worldwide credit crunch. It has all happened before. During the Great Depression, the economist John Maynard Keynes noted with cynicism: "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."

The careers of many of those at Lehman Brothers (NYSE: LEH - News) have been ruined in just such a conventional way. Some may argue that the bank and other lending institutions would all have benefited from foresight.

But Gonzales argues that something more than foresight is needed. It is part gut instinct, part sensitive antennae and partconfidence to sound the alert. It is one thing to sense danger and quite another to instigate the measures needed to survive.

At Intel, Grove had to assume almost a new identity to make the hard decisions that would devote resources to microprocessors. In investment banks such decisions are more difficult, since prudence and long-term thinking are rarely rewarded.

If they were, the banks would make less money in the short term and bonuses would shrink. Intel's shift in manufacturing strategy cost the company £180m in 1986. Factories closed and 8,000 employees lost their jobs. But it survived and finally prospered in the high-tech revolution.

Read Mohamed El-Erian's introduction to his book 'When Markets Collide', winner of the FT Goldman Sachs Business Book of the Year award at www.ft.com/bookaward