Herd Behaviour (Behavioural Economics)

Herd behaviour is a phenomenon in which individuals act collectively as part of a group, often making decisions as a group that they would not make as an individual.

There are two generally accepted explanations of herd behaviour.

1. Firstly, the social pressure to conform means that individuals want to be accepted – and this means behaving in the same way as others, even if that behaviour goes against your natural instincts.

2. Secondly, individuals find it hard to believe that a large group could be wrong (“2 heads are better than 1”) and follow the group’s behaviour in the mistaken belief that the group knows something that the individual doesn’t.

This is described as the bandwagon effect or groupthink.

In short, herd behaviour is about making a decision based in part on the behaviour/choices of others.