Behaviour
Herding
Following what others are doing rather than reaching your own conclusion.
How it works
Herding is individually rational and collectively destabilising. Being wrong alongside everyone else is more comfortable than being wrong alone, and it is how bubbles form.
Professional investors face an additional version: career risk makes deviating from the consensus more dangerous than being conventionally wrong.
Related terms
- BubbleA price rise driven by expectations of further rises rather than by underlying value.
- Fear of missing outBuying because something is rising and others are profiting, rather than because of any analysis.
- Confirmation biasSeeking and believing information that supports what you already think.
- MomentumThe tendency of recent winners to keep outperforming, and losers to keep underperforming, over months.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.