I’ll do what you're doing
A question about sports teams may seem an unusual topic for an eZonomics poll. However, it relates to a well-known behavioural economics idea about “herd” behaviour. When people follow their friends’ favourite sports team, they may simply be following the herd. And as this Behavioural Finance website details, herd behaviour is also seen in investing trends, including housing, the share market and foreign exchange markets. It is one of 10 thinking traps in the eZonomics article Selective thinking, where it is called the conformity trap.
Let’s get strategic with our investments
Behavioural economics website Nudge gives a humorous illustration of herd behaviour. It recaps an episode of the sitcom King of Queens in which the protagonists follow the herd and invest a Christmas bonus in a high-flying internet stock that goes up for one day, but then quickly falls. In that instance, following the herd did not pay off. It suggests simply following the crowd can be financially dangerous. A smarter strategy includes taking account of how financial circumstances, stage in life and attitudes to risk can differ between peers and friends – and how investments might reflect such differences.