Why don’t they like the Herd

Posted by on Oct 7, 2007 in Uncategorized | 8 Comments

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Whatever you think of the latest Economist ads, this one suprised me. Or maybe it didn’t.

Now “herd behaviour” is something that the shrewd investor avoids because “irrational exuberance” tends not to make many folk much money in the long run. Most folk just lose their shirts when markets get overheated

Of course the Economist marketing campaign so widely – and rightly – lauded by its creators’ peers, has long worked on the premise of separating out the few from the many (sometimes consciously and sometimes not) but this rather clunky version of the idea is unmistakeably explicit and suggests that the underlying appeal is not at all to do with money but – as I suspect is all too often the case – with social standing. If you don’t “get” the Economist, you’ll be stuck with the herd, passed over for promotion and so on.

But herd behaviour is precisely what underlies mass behaviour in all their forms, including markets (and not just in the more excited versions). Why is it so hard to accept this? Mr Freakonomics enjoys one of his rare outings in the field here but you get the very strong sense that this is against his will and somewhat without much conviction (Herd is still bad…). Equally, came across a Facebook debate on the subject the other day in which one party was criticising those who allowed themselves to be influenced by others (as “weak” and folk who should know better). There’s also this which typifies the “smart individual” vs. “stupid herd” schtick so common in investment circles..

I’m not sure that there’s much to explain this beyond: 1. our culture (most folk in business have grown up in the individualist culture of the Anglo Saxon West) and 2. the way our minds give us the impression that each of us is the architect of our own lives (when in fact ‘author’ – as in fiction – might be a better description). 3. As the conformity school of social psychology proposed, most influence is invisible to the person being influenced

Of course, (yes, JD) you can choose to do something (and get a strong sense that you did this all on your lonesome) but this is rare. We just don’t like to accept that it’s as rare as it is and that most of what we do is the result of our interaction with other individuals etc.

8 Comments

  1. John
    October 7, 2007

    I suppose they might argue that every herd must have an initiater and that, in Economist terms, the smart thing to do is to be ahead of the curve.
    Could you argue that those “leaders” are part of a smaller herd because they’re replicating a route to “profit” that they have seen before and a behaviour that would generate kudos within their own social grouping?
    The true “individual” after all would be the one who rejected the whole capitalist notion.

  2. Herb
    October 8, 2007

    Hi
    About half way through the book and loving it. And I agree with your thoughts that most of us don’t want to think that we could be influenced and not control of everything we do (horrible paraphrase I know).
    But I have started to notice something lately within myself…which may because your book has helped me articulate it to myself. But the more i’ve become part of a group the more I’ve wanted to be an individual within the groups architecture. I still want to follow the groups norms, but I want to be myself within the group. I’m not sure what or where this thinking is taking me, except that I wonder what the ‘i’ will look like in social media?

  3. mark Earls
    October 8, 2007

    Spot on, JD, as ever. The “ahead of the curve thing” is a social identity above all – think that’s what I’m on about here. Even in the financial context (where and individual’s ‘rationality’ is prized so highly) the truth is otherwise.
    Also, you may well be right about the imagined/real herd of other folk also ahead of the game (or AOTGs as some bright spark will no doubt call it)
    And Herb – welcome aboard. This is the tricky bit: balancing our in-built and our learned illusions with the reality of our lives. I think there’s some interesting work still to be done here: let me know what you come up with!

  4. Roland Harwood
    October 8, 2007

    Mark,
    Just became aware of this article about fairness in humans which I thought you would be interested in.
    http://www.latimes.com/news/printedition/asection/la-sci-unfair5oct05,1,2081450.story
    Interestingly, in light of you current post about the economist advertising, when I went to the LA Times website where this article appeared, a pop-up ad appeared for the Economist saying “Great Minds think Alike”!!! Perhaps somebody should point out the contradiction in their 2 current campaigns.
    Roland

  5. Mike Tyldesley
    October 10, 2007

    Well at least this post will only lead me into buying the Economist….. (not, I think). Apropos your final para in this interesting post; Michel Maffesoli somewhere notes that its when we feel that we are being most “individual” that we are most enbodying the “archetypes”. You don’t have to be a Jungian or post-Jungian to see the point of this observation, I feel.

  6. mark Earls
    October 10, 2007

    good stuff, fellas
    Roland – that’s an interesting area I think. will post on my Zoo trip shortly.
    Mike – I think you’re right. Durkheim says that an idea only really counts as a cultural ideology when becomes invisible to us and transforms itself into a feature of the world as we see it. Much the same thought, I think.

  7. David
    October 11, 2007

    Hi Mark,
    Did you happen to catch this article on the cascade effect? http://www.nytimes.com/2007/10/09/science/09tier.html?pagewanted=1&bl&ei=5087&en=b698745fe9b69c4d&ex=1192248000
    Seems like it could have been titled “When Herds Go Wrong.”
    Dave

  8. Mark Earls
    October 11, 2007

    Nice stuff, Dave. Interesting to ponder what the cascade experts would say about their received opinion and how they got it