Humans are herd mammals. We love to be in a crowd. When left alone, we begin to act very strange, this has been well-documented with the forest boy. But, when left to the whims of the crowd, we often make very poor decisions. The name for this affliction is herd behavior, and unfortunately, it is very difficult to for us to identify when we are in a herd.
Even famous economists can fall victim to herd behavior.
“This is the time to buy stocks.” – R.W. McNeel, Market Analyst, New York Herald Tribune, Oct. 30, 1929
“The idea that we are going to see a collapse in the housing market seems to me improbable.” – John Snow, Secretary of the Treasury, U.S.A, Sept. 20, 2005
“Our financial institutions are strong. Our investment banks are strong. Our banks are strong. They’re going to be strong for many, many years.” – Henry Paulson, Secretary of the Treasury, U.S.A, March 2008
“Our banks are in a very, very strong position, and that also stands us in very good stead…” -Wayne Swan, Deputy Prime Minister and Treasurer, Australia, Aug. 11, 2011″
For a great (short) movie about herd behavior, watch this wonderful movie. Enjoy!
Click this image to watch the short movie.
