B.E. For Dogs: Herding
B.E. for Dogs is a bi-weekly comic series that will examine concepts in behavioral economics from the perspective of our canine companions. Look out for new comics every other week!
Herding: Ever notice how when one pup starts barking, nearby pups echo the call? Herding refers to acting based on what the crowd is doing (rather than acting based on relevant circumstances). Herding behavior is especially prevalent in the stock market. For example, if an investor sees that lots of people are selling a certain stock, the investor might sell that stock, even if that’s not a good long term-decision. Check out Bondt & Thaler’s paper to learn more.
*Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact?. The Journal of finance, 40(3), 793-805.