Human beings are social animals, notes economist Michelle Baddeley, and as such the instinct to herd is hardwired into us. And so while this has changed from (in most cases) physically clumping into groups, it does translate into behavior linked to financial markets, news consumption, restaurant-picking and Brooklyn facial hair decisions.
In this latest Social Science Bites podcast, Baddeley – a research professor at the University of South Australia’s Institute for Choice, Sydney — tells interviewer David Edmond how modern herding often follows from an information imbalance, real or perceived, in which a person follows the wisdom of crowds. The decision to join in, she explains, is often based an astute reading of risk; as she quotes John Maynard Keynes, “It’s better to be conventionally wrong than unconventionally right.” As a real world example of that, she points to the plight of the junior researcher, whose career is best advanced by serving up their innovative insights along conventional lines.
Apart from reputational damage control, there are pluses and minuses to human herding, Baddeley notes there are advantages to finding safety in numbers: “It’s a good way to find a hotel.” But there are pernicious outcomes, too, like groupthink. In that vein, the economist says she finds partisan herding “more prevalent in a ‘post truth age,’” as individuals join thought groups that reinforce their existing world-view. And it doesn’t help, her research finds, that people are more likely to herd the less well-informed they are.
This has also had dire consequences in financial markets (Baddeley was principal investigator on a Leverhulme Trust project focused on neuroeconomic examination of herding in finance), where pushing against the grain makes for a short career for anyone other than the luckiest professional stockpicker.
Baddeley’s early education was in Australia and her first professional work was as an economist with the Australian Commonwealth Treasury. She then completed masters and doctorate work at Cambridge. Her most recent book is 2013’s Behavioural Economics and Finance and other works include Running Regressions – A Practical Guide to Quantitative Research (2007) and Investment: Theories and Analysis (2003). Yale University Press will publish Baddeley’s forthcoming book, Copycats and Contrarians: How, When and Why We Follow Others, this autumn.
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Social Science Bites is made in association with SAGE Publishing. For a complete listing of past Social Science Bites podcasts, click HERE. You can follow Bites on Twitter @socialscibites and David Edmonds @DavidEdmonds100.