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Herd behavior

herd behavior, herd behavior in financial markets
Herd behavior describes how individuals in a group can act collectively without centralized direction The term can refer to the behavior of animals in herds, packs, bird flocks, fish schools and so on, as well as the behavior of humans in demonstrations, riots and general strikes, sporting events, religious gatherings, episodes of mob violence and everyday decision-making, judgement and opinion-forming

Raafat, Chater and Frith proposed an integrated approach to herding, describing two key issues, the mechanisms of transmission of thoughts or behavior between individuals and the patterns of connections between them They suggested that bringing together diverse theoretical approaches of herding behavior illuminates the applicability of the concept to many domains, ranging from cognitive neuroscience to economics


  • 1 In animals
  • 2 Symmetry-breaking
  • 3 In human societies
    • 31 Stock market bubbles
    • 32 In crowds
    • 33 Everyday decision-making
  • 4 In Marketing
    • 41 Herd Behavior in Brand and Product success
    • 42 Herd Behavior in Social Marketing
  • 5 See also
  • 6 Notes
  • 7 References
  • 8 Further reading

In animals

Play mediaShimmering behaviour of Apis dorsata giant honeybees

A group of animals fleeing from a predator shows the nature of herd behavior In 1971, in the oft cited article "Geometry For The Selfish Herd," evolutionary biologist W D Hamilton asserted that each individual group member reduces the danger to itself by moving as close as possible to the center of the fleeing group Thus the herd appears as a unit in moving together, but its function emerges from the uncoordinated behavior of self-serving individuals


Asymmetric aggregation of animals under panic conditions has been observed in many species, including humans, mice, and ants Theoretical models have demonstrated symmetry-breaking similar to observations in empirical studies For example, when panicked individuals are confined to a room with two equal and equidistant exits, a majority will favor one exit while the minority will favor the other

Possible mechanisms for this behavior include Hamilton’s selfish herd theory, neighbor copying, or the byproduct of communication by social animals or runaway positive feedback

Characteristics of escape panic include:

  • Individuals attempt to move faster than normal
  • Interactions between individuals become physical
  • Exits become arched and clogged
  • Escape is slowed by fallen individuals serving as obstacles
  • Individuals display a tendency towards mass or copied behavior
  • Alternative or less used exits are overlooked

In human societies

The philosophers Søren Kierkegaard and Friedrich Nietzsche were among the first to criticize what they referred to as "the crowd" Kierkegaard and "herd morality" and the "herd instinct" Nietzsche in human society Modern psychological and economic research has identified herd behavior in humans to explain the phenomena of large numbers of people acting in the same way at the same time The British surgeon Wilfred Trotter popularized the "herd behavior" phrase in his book, Instincts of the Herd in Peace and War 1914 In The Theory of the Leisure Class, Thorstein Veblen explained economic behavior in terms of social influences such as "emulation," where some members of a group mimic other members of higher status In "The Metropolis and Mental Life" 1903, early sociologist George Simmel referred to the "impulse to sociability in man", and sought to describe "the forms of association by which a mere sum of separate individuals are made into a 'society' " Other social scientists explored behaviors related to herding, such as Freud crowd psychology, Carl Jung collective unconscious, and Gustave Le Bon the popular mind Swarm theory observed in non-human societies is a related concept and is being explored as it occurs in human society

Stock market bubbles

Large stock market trends often begin and end with periods of frenzied buying bubbles or selling crashes Many observers cite these episodes as clear examples of herding behavior that is irrational and driven by emotion—greed in the bubbles, fear in the crashes Individual investors join the crowd of others in a rush to get in or out of the market

Some followers of the technical analysis school of investing see the herding behavior of investors as an example of extreme market sentiment The academic study of behavioral finance has identified herding in the collective irrationality of investors, particularly the work of Nobel laureates Vernon L Smith, Amos Tversky, Daniel Kahneman, and Robert Shiller

Hey and Morone 2004 analyzed a model of herd behavior in a market context Their work is related to at least two important strands of literature The first of these strands is that on herd behavior in a non-market context The seminal references are Banerjee 1992 and Bikhchandani, Hirshleifer and Welch 1992, both of which showed that herd behavior may result from private information not publicly shared More specifically, both of these papers showed that individuals, acting sequentially on the basis of private information and public knowledge about the behavior of others, may end up choosing the socially undesirable option The second of the strands of literature motivating this paper is that of information aggregation in market contexts A very early reference is the classic paper by Grossman and Stiglitz 1976 that showed that uninformed traders in a market context can become informed through the price in such a way that private information is aggregated correctly and efficiently In this strand of the literature, the most commonly used empirical methodologies to test for herding toward the average, are the works of Christie and Huang 1995 and Chang, Cheng and Khorana 2000 Overall, it was shown that it is possible to observe herd-type behavior in a market context The results refer to a market with a well-defined fundamental value Even if herd behavior might only be observed rarely, this has important consequences for a whole range of real markets – most particularly foreign exchange markets

One such herdish incident was the price volatility that surrounded the 2007 Uranium bubble, which started with flooding of the Cigar Lake Mine in Saskatchewan, during the year 2006

In crowds

Main article:Crowd psychology

Crowds that gather on behalf of a grievance can involve herding behavior that turns violent, particularly when confronted by an opposing ethnic or racial group The Los Angeles riots of 1992, New York Draft Riots and Tulsa Race Riot are notorious in US history The idea of a "group mind" or "mob behavior" was put forward by the French social psychologists Gabriel Tarde and Gustave Le Bon

Everyday decision-making

"Benign" herding behaviors may occur frequently in everyday decisions based on learning from the information of others, as when a person on the street decides which of two restaurants to dine in Suppose that both look appealing, but both are empty because it is early evening; so at random, this person chooses restaurant A Soon a couple walks down the same street in search of a place to eat They see that restaurant A has customers while B is empty, and choose A on the assumption that having customers makes it the better choice Because other passersby do the same thing into the evening, restaurant A does more business that night than B This phenomenon is also referred as an information cascade

In Marketing

Herd behavior is often a useful tool in marketing and, if used properly, can lead to increases in sales and changes to the structure of society Whilst it has been shown that financial incentives cause action in large numbers of people, herd mentality often wins out in a case of “Keeping up with the Jones’s”

Herd Behavior in Brand and Product success

Communications technologies have contributed to the proliferation to consumer choice and “the power of crowds,”Consumers increasingly have more access to opinions and information from both opinion leaders and formers on platforms that have largely user-generated content, and thus have more tools with which to complete any decision-making process Popularity is seen as an indication of better quality, and consumers will use the opinions of others posted on these platforms as a powerful compass to guide them towards products and brands that align with their preconceptions and the decisions of others in their peer groups Taking into account differences in needs and their position in the socialization process, Lessig & Park examined groups of students and housewives and the influence that these reference groups have on one another By way of herd mentality, students tended to encourage each other towards beer, hamburger and cigarettes, whilst housewives tended to encourage each other towards furniture and detergent Whilst this particular study was done in 1977, one cannot discount its findings in today’s society A study done by Burke, Leykin, Li and Zhang in 2014 on the social influence on shopper behavior shows that shoppers are influenced by direct interactions with companions, and as a group size grows, herd behaviour becomes more apparent Discussions that create excitement and interest have greater impact on touch frequency and purchase likelihood grows with greater involvement caused by a large group Shoppers in this Midwestern American shopping outlet were monitored and their purchases noted, and it was found up to a point, potential customers preferred to be in stores which had moderate levels of traffic The other people in the store not only served as company, but also provided an inference point on which potential customers could model their behavior and make purchase decisions, as with any reference group or community

Social media can also be a powerful tool in perpetuating herd behaviour Its immeasurable amount of user-generated content serves as a platform for opinion leaders to take the stage and influence purchase decisions, and recommendations from peers and evidence of positive online experience all serve to help consumers make purchasing decisions Gunawan and Huarng’s 2015 study concluded that social influence is essential in framing attitudes towards brands, which in turn leads to purchase intentionInfluencers form norms which their peers are found to follow, and targeting extroverted personalities increases chances of purchase even further This is because the stronger personalities tend to be more engaged on consumer platforms and thus spread word of mouth information more efficiently Many brands have begun to realise the importance of brand ambassadors and influencers, and it is being shown more clearly that herd behaviour can be used to drive sales and profits exponentially in favour of any brand through examination of these instances

Herd Behavior in Social Marketing

Marketing can easily transcend beyond commercial roots, in that it can be used to encourage action to do with health, environmentalism and general society Herd mentality often takes a front seat when it comes to social marketing, paving the way for campaigns such as Earth Day, and the variety of anti-smoking and anti-obesity campaigns seen in every country Within cultures and communities, marketers must aim to influence opinion leaders who in turn influence each other, as it is the herd mentality of any group of people that ensures a social campaign’s success A campaign run by Som la Pera in Spain to combat teenage obesity found that campaigns run in schools are more effective due to influence of teachers and peers, and students’ high visibility, and their interaction with one another Opinion leaders in schools created the logo and branding for the campaign, built content for social media and led in-school presentations to engage audience interaction It was thus concluded that the success of the campaign was rooted in the fact that its means of communication was the audience itself, giving the target audience a sense of ownership and empowerment As mentioned previously, students exert a high level of influence over one anothers, and by encouraging stronger personalities to lead opinions, the organizers of the campaign were able to secure the attention of other students who identified with the reference group

Herd behaviour not only applies to students in schools where they are highly visible, but also amongst communities where perceived action plays a strong role Between 2003 and 2004, California State University carried out a study to measure household conservation of energy, and motivations for doing so It was found that factors like saving the environment, saving money or social responsibility did not have as great an impact on each household as the perceived behaviour of their neighbours did Although the financial incentives of saving money, closely followed by moral incentives of protecting the environment, are often thought of as being a community’s greatest guiding compass, more households responded to the encouragement to save energy when they were told that 77% of their neighbours were using fans instead of air conditioning, proving that communities are more likely to engage in a behaviour if they think that everyone else is already taking part

Herd behaviours shown in the two examples exemplify that it can be a powerful tool in social marketing, and if harnessed correctly, has the potential to achieve great change It is clear that opinion leaders and their influence achieve huge reach amongst their reference groups and thusly can be used as the loudest voices to encourage others in any collective direction

See also

  • Psychology portal
  • Sociology portal
  • Economics portal
  • Anxiety
  • Bandwagon effect
  • Collective behavior
  • Collective consciousness
  • Collective effervescence
  • Collective intelligence
  • Crowd psychology
  • Conformity
  • Group behavior
  • Groupthink
  • Herd mentality
  • Hive mind
  • Informational cascade
  • Mass hysteria
  • Mean world syndrome
  • Meme
  • Mob rule
  • Moral panic
  • Propaganda
  • Self-organization
  • Sheeple
  • Social proof
  • Socionomics
  • Spontaneous order
  • Swarm intelligence
  • Team player
  • The 2009 Birmingham, Millennium Point stampede
  • Riot
  • Stampede
  • Symmetry breaking of escaping ants


a ^ See for example the Wikipedia article on his book Irrational Exuberance


  1. ^ Braha, D 2012 Global Civil Unrest:Contagion, Self-Organization, and Prediction PLoS ONE 710:e48596, article doi:101371/journalpone0048596
  2. ^ Raafat, R M; Chater, N; Frith, C 2009 "Herding in humans" Trends in Cognitive Sciences 13 10:420–428 doi:101016/jtics200908002 
  3. ^ Burke, C J; Tobler, P N; Schultz, W; Baddeley, M 2010 "Striatal BOLD response reflects the impact of herd information on financial decisions" Frontiers in Human Neuroscience 4:48 doi:103389/fnhum201000048 PMID 20589242 
  4. ^ a b Hamilton, W D 1971 "Geometry for the Selfish Herd" Journal of Theoretical Biology 31 2:295–311 doi:101016/0022-51937190189-5 PMID 5104951 
  5. ^ Altshuler, E; Ramos, O; Nuñez, Y; Fernández, J "Panic-induced symmetry breaking in escaping ants" PDF University of Havana, Havana, Cuba Retrieved 2011-05-18 
  6. ^ Altshuler, E; Ramos, O; Núñez, Y; Fernández, J; Batista-Leyva, A J; Noda, C 2005 "Symmetry Breaking in Escaping Ants" The American Naturalist 166 6:643–649 doi:101086/498139 
  7. ^ Markus K Brunnermeier, Asset Pricing under Asymmetric Information:Bubbles, Crashes, Technical Analysis, and Herding, Oxford University Press 2001
  8. ^ Robert Prechter, The Wave Principle of Human Social Behavior, New Classics Library 1999, pp 152–153
  9. ^ a b Shiller, Robert J 2000 Irrational Exuberance Princeton University Press pp 149–153 Retrieved 4 March 2013 
  10. ^ In Focus article 8 June 2012, "WNFM:A Focus on Fundamentals One Year After Fukushima", Reproduced article from Nuclear Market Review, TradeTech, retrieved 4 March 2013  There are several reproduced In Focus articles on this page The relevant one is near the bottom, under the title in this reference 
  11. ^ UraniumSeekcom, Gold Seek LLC 2008-08-22 "Uranium Has Bottomed:Two Uranium Bulls to Jump on Now" UraniumSeekcom Retrieved 2011-09-19 
  12. ^ "Uranium Bubble & Spec Market Outlook" Newsgoldseekcom Retrieved 2011-09-19 
  13. ^ Banerjee, Abhijit V 1992 "A Simple Model of Herd Behavior" Quarterly Journal of Economics 107 3:797–817 doi:102307/2118364 
  14. ^ Bikhchandani, Sushil; Hirshleifer, David; Welch, Ivo 1992 "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades" Journal of Political Economy 100 5:992–1026 doi:101086/261849 
  15. ^ Froot, K; Schaferstein, DS; Jeremy Stein, J 1992 "Herd on the street:Informational inefficiencies in a market with short-term speculation" PDF Journal of Finance 47:1461–1484 doi:101111/j1540-62611992tb04665x 
  16. ^ Hirshleifer, D; Teoh, SH 2003 "Herd behaviour and cascading in capital markets:A review and synthesis" PDF European Financial Management 9 1:25–66 doi:101111/1468-036X00207 
  17. ^ Chen, Yi-Fen 2008-09-01 "Herd behavior in purchasing books online" Computers in Human Behavior Including the Special Issue:Internet Empowerment 24 5:1977–1992 doi:101016/jchb200708004 
  18. ^ Lessig, V 1977 "Students and Housewives:Differences in Susceptibility to Reference Group Influence" Journal of Consumer Research 
  19. ^ Zhang, Xiaoling; Li, Shibo; Burke, Raymond R; Leykin, Alex 2014-05-13 "An Examination of Social Influence on Shopper Behavior Using Video Tracking Data" Journal of Marketing 78 5:24–41 doi:101509/jm120106 ISSN 0022-2429 
  20. ^ a b Dhar, Joydip; Jha, Abhishek Kumar 2014-10-03 "Analyzing Social Media Engagement and its Effect on Online Product Purchase Decision Behavior" Journal of Human Behavior in the Social Environment 24 7:791–798 doi:101080/109113592013876376 ISSN 1091-1359 
  21. ^ Gunawan, Dedy Darsono; Huarng, Kun-Huang 2015-11-01 "Viral effects of social network and media on consumers' purchase intention" Journal of Business Research 68 11:2237–2241 doi:101016/jjbusres201506004 
  22. ^ Cheung, Christy M K; Xiao, Bo Sophia; Liu, Ivy L B 2014-09-01 "Do actions speak louder than voices The signaling role of social information cues in influencing consumer purchase decisions" Decision Support Systems Crowdsourcing and Social Networks Analysis 65:50–58 doi:101016/jdss201405002 
  23. ^ James M Cronin; Mary B McCarthy 2011-07-12 "Preventing game over:A study of the situated food choice influences within the videogames subculture" Journal of Social Marketing 1 2:133–153 doi:101108/20426761111141887 ISSN 2042-6763 
  24. ^ Lozano, Natàlia; Prades, Jordi; Montagut, Marta 2015-10-01 "Som la Pera:How to develop a social marketing and public relations campaign to prevent obesity among teenagers in Catalonia" Catalan Journal of Communication & Cultural Studies 7 2:251–259 doi:101386/cjcs72251_1 
  25. ^ Nolan, Jessica M; Schultz, P Wesley; Cialdini, Robert B; Goldstein, Noah J; Griskevicius, Vladas 2008-07-01 "Normative Social Influence is Underdetected" Personality and Social Psychology Bulletin 34 7:913–923 doi:101177/0146167208316691 ISSN 0146-1672 PMID 18550863 

Further reading

  • Bikhchandani, Sushil; Hirshleifer, David; Welch, Ivo 1992 "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades" Journal of Political Economy 100 5:992–1026 doi:101086/261849 JSTOR 2138632 
  • Trotter, Wilfred 1914 The Instincts of the Herd in Peace and War 
  • Brunnermeier, Markus Konrad 2001 Asset Pricing under Asymmetric Information:Bubbles, Crashes, Technical Analysis, and Herding Oxford, UK ; New York:Oxford University Press 
  • Rook, Laurens 2006 "An Economic Psychological Approach to Herd Behavior" Journal of Economic Issues 40 1:75–95 
  • Hamilton, W D 1970 Geometry for the Selfish Herd Diss Imperial College 
  • Stanford, Craig B 2001 "Avoiding Predators:Expectations and Evidence in Primate Antipredator Behaviour" International Journal of Primatology 23:741–757 doi:101023/A:1015572814388  Ebsco Fall Keyword:Herd Behaviour
  • Ottaviani, Marco; Sorenson, Peter 2000 "Herd Behavior and Investment:Comment" American Economic Review 90 3:695–704 doi:101257/aer903695 JSTOR 117352 
  • Altshuler, E; et al 2005 "Symmetry Breaking in Escaping Ants" The American Naturalist 166:643–649 doi:101086/498139 
  • Hey, John D; Morone, Andrea 2004 "Do Markets Drive out Lemmings—or Vice Versa" Economica 71 284:637–659 doi:101111/j0013-0427200400392x JSTOR 3548984 

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