Herd behavior can lead to collective irrationality from "summary" of Misbehaving by Richard H Thaler
Herd behavior can lead to collective irrationality, as individuals tend to follow the crowd without critically evaluating the situation. This phenomenon is characterized by a lack of independent thinking, where people rely on the actions of others to guide their own behavior. When faced with uncertainty or ambiguity, individuals are more likely to conform to the group rather than making their own decisions. This can result in irrational outcomes, as the group may collectively ignore relevant information or overlook potential risks. In the context of financial markets, herd behavior can have significant implications. Investors often exhibit a tendency to follow the actions of others, leading to a herd mentality that drives market movements...
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