What Is Herd Mentality in Investing — Why ‘Everyone Is Doing It’ Reliably Produces Bad Outcomes
In 1951, social psychologist Solomon Asch ran an experiment that has since become one of the most-cited demonstrations in psychology. He showed a group of subjects three lines of obviously different lengths, asked which one matched a fourth reference line, and watched what happened when the rest of the “subjects” in the room (actually confederates instructed to answer wrongly) confidently gave the wrong answer. Roughly 37% of real subjects went along with the wrong answer at least once, despite the correct answer being visually unambiguous. ….[READ]
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