In order to stay sane our brains creates the illusion that all our thoughts are completely rational and independent. But, no matter how independent-minded you think you are, it is easier – and unknowingly more seductive – to follow a widely-accepted dogma, than create your own.
How to overcome herd mentality and not be sheeple
In order to stay sane our brains creates the illusion that all our thoughts are completely rational and independent. But, no matter how independent-minded you think you are, it is easier – and unknowingly more seductive – to follow a widely-accepted dogma, than create your own. Most people are sociable and have a natural desire to be accepted, rather than being stigmatized as outcasts. Therefore, following a group is an ideal way to become a member, but how can you follow a group and overcome herd mentality and its negative impacts?
Herd mentality in financial crises
The bursting of the internet bubble is one of the most infamous financial events in recent history. The crash that followed saw the Nasdaq index, which had risen five-fold between 1995 and 2000, tumble from a peak of 5,048.62 in March 2000, to 1,139.90 in Oct 2002, a 76.81% fall. By the end of 2001, most dotcom stocks had gone bust.
Investments favored by the herd can easily become overvalued, as high investment values are usually based on optimism and not fundamentals. Financial markets have experienced this type of event on many occasions, from tulip mania in the 1600s, the great depression, and the last global economic downturn caused by the collapse of the subprime mortgage markets in 2007.
How can something so catastrophic happen again and again?
The answer to this question can be found in that same human attribute: herd mentality. It represents the tendency of investors to imitate the actions (rational or irrational) of a large group of investors. Individually, most traders would not necessarily make the same choice.
More examples of herd mentality
To further illustrate the mentality of the herd inside us, psychologists from Harvard University showed men different pictures of women and asked them to rate each one according to its beauty. The men then saw what they were told was the group’s average score for each photo – but in reality it was a random computer-generated score.
Thirty minutes later, they were asked to re-evaluate the photo, while what was going on in their brains was being watched. Unsurprisingly, their new score came close to the consensus, and those who had to raise their initial score – deciding that the woman was more beautiful than they had originally decided – took greater brain activity than generating their initial scores.
What is herd mentality?
A herd, as defined by the Cambridge dictionary, is a large group of animals of the same type that live and feed together. Aristotle, the legendary Greek Philosopher, said that Man is by nature a social animal, inferring that humans prefer living within a group than alone. From this vantage point, it seems perfectly appropriate and not at all demeaning to describe herd mentality as the tendency of people to conform to the behavior or beliefs of the group to which they belong.
The science is clear, numerous studies demonstrate the actions of a large group greatly influence an individual’s decision. Herd behavior suggest there are limits to human free will. Pushed by the herd, people act the same way or adopt similar behaviors as people around them ignoring their own feelings in the process.
Are most humans ‘sheeple’
Sheep are docile, compliant, kind, and quite pleasant animals – and very tasty too. Being described as a sheep, however, certainly has pejorative connotations, but most of us are more sheepish than we might like to admit. How many of us watch 3-4 hours of television each day, believe the political-minded media is telling us the truth, or buy something just because it is a fad?
“If one sheep bolts for no reason, the majority if not the entire flock is likely to do the same thing. The only thing with a more questionable intelligence than a sheep is the idiot that chooses to raise sheep. They are dumb. Really really dumb.”Dacelle Peckler, Veterinarian and sheep raiser
A study conducted by Professor Krause at the University of Leeds showed that humans flock like sheep and birds. In his experiment Professor Krause asked groups of people to walk randomly around a large hall with a select few receiving additional instructions about where to walk. Participants were not allowed to communicate and had to stay a minimum arm’s length from everyone else. As the experiment unfurled the informed individuals ended up being followed by others in the crowd. Actions taken by a minority of just 5% of informed individuals influenced the behavior of 85% of the remainder of the group, and – more importantly – without them even realizing.
Professor Krause’s experiment showed that in a group setting humans have a propensity for copying behavior. This copying can sometimes lead to a type of collective madness when ineffective or harmful knowledge goes viral. The scientific term for this is maladaptive herding.
“Most people would rather be wrong within the company of the herd, than be right outside of it.”
Maladaptive herding can make groups of animals, like sheep – or lemmings, make critically stupid decisions like plunging over a cliff. But in other groups of animals, such as honey bees, herd mentality can help make crazily smart decisions.
Honey bees, a different type of herd mentality
Honey bees are known for their ability to work together in a group and collectively make decisions in the search for food or sites for new nests. Perhaps lesser known is how honey bees use their communication system to allow good decisions to spread and not to follow bad ones. Good decisions go viral! How do they do that?
Austrian behavioral biologist Karl Von Firsch found that worker bees use a kind of waggle dance to communicate with other bees. These waggle dances are bees’ version of online shopping ratings system; instead of stars or good reviews the ratings are based on the duration of the dance. When bees find a good source of food, they dance for a long time. When the source is poor the dance only lasts a short time or is non-existent.
With this very sophisticated – and rather fun communication system – honey bees can skillfully identify the most profitable nectar sources amongst the sites they have visited and can also rapidly shift their foraging efforts following updates from other bees in the colony. The beauty of this system is that even if each forager only knows about its own nectar source, together they generate a coherent colony-level response that enables better resources to be exploited and poorer ones to be abandoned.
When bees happily dance the night away the information quickly goes viral and other bees will congregate to that spot! This behavior is neither triggered by a control center nor enforced by hierarchy, rather it results from effective communication or copying, otherwise known as social learning.
Humans, sheep or bees?
Groups of humans sometimes exhibit collective wisdom but at other times suffer from madness of the crowd. Understanding this apparent conflict has been a longstanding problem in social science. Dr Wataru Toyokawa from the University of St Andrews in Scotland published a paper titled Social Learning Strategies regulate the wisdom and madness of interactive crowds to help explain this phenomena.
In Dr Toyokawa’s experiment, hundreds of online volunteers were asked to participate in an online game and repeatedly play one of three slot machines, the mission being to win as much money as possible. At the start no-one knew that one slot paid out more than the others, but – as they could see what other players were doing in real time – quickly learned to copy and play the same machine as the high-winners. Halfway through the experiment, when there was a high degree of conformity and without informing the participants, the organizers changed the slot with the highest pay-out. The players didn’t learn or change behavior but continued to play the same, now bad paying, slot for the remainder of the game.
“If everyone is thinking alike, then somebody isn’t thinking.”George S. Patton
Dr Toyokawa’s experiment shows when large groups are confronted with tough challenges collective decision making becomes inflexible and maladaptive herding behavior become prominent. As groups became larger, conformity increased and players made both poorer decisions and took longer to make the intelligent switch between slots. The results also showed that as uncertainty increased, i.e. as the choice of slots became harder, players took even longer to break away from conformant behavior.
Humans – unlike bees – it seems, are not masters of collective decision making. The popular slot became more popular because people followed the majority choice, even after it stopped being the winning one.
As social animals, humans seek information from others when making decisions. Good marketers and social influencers perhaps know this best. When more people exhibit any given choice, be it fashion, politics, book reviews, etc., the more people will follow in tow – in the same way that people might choose to trust Instagram, Twitter, political media, or other accounts with large followings.
“People are sheep. TV is the shepherd.”Jess C. Scott, Literary Heroin (Gluttony): A Twilight Parody
In large group setting or performing difficult tasks, humans are largely unaware of their herd instincts or sheep-like behavior. There is also a belief that the ideas of a large group cannot go wrong. But, when group size is small or there was a less challenging version of the task to undertake, people are willing to explore less popular options.
Social learning is a source of collective intelligence that emerges from the collaboration or collective efforts of many individuals. To overcome herd mentality and its negative impacts, be like a bee. If you are convinced that an idea is irrational or incorrect, don’t follow the flock, avoid the madness of the crowds.
And this, my friend, is Your Quest!
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