Why don’t they like the Herd

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.