Bovine and Asinine
It seems sort of obvious that investors, a generally bovine group when not in asinine mood, will tend to congregate in herds and then charge about randomly, often over the edge of the nearest cliff. If this is true, however, it poses a set of puzzles that it’s not clear that any of the current approaches to understanding mass market behaviour can properly explain.
Certainly this behaviour isn’t efficient in the sense of obtaining the right price for a security, because deciding what to do based on the person running about in ever-decreasing circles next to you doesn’t come close to propagating useful information. However, if investors are irrational in herds then this implies that somehow their behaviour is synchronised and it’s certainly not clear that the simple set of isolated psychological biases that analysts currently work with is anywhere near sufficient to explain this.
It seems sort of obvious that investors, a generally bovine group when not in asinine mood, will tend to congregate in herds and then charge about randomly, often over the edge of the nearest cliff. If this is true, however, it poses a set of puzzles that it’s not clear that any of the current approaches to understanding mass market behaviour can properly explain.
Certainly this behaviour isn’t efficient in the sense of obtaining the right price for a security, because deciding what to do based on the person running about in ever-decreasing circles next to you doesn’t come close to propagating useful information. However, if investors are irrational in herds then this implies that somehow their behaviour is synchronised and it’s certainly not clear that the simple set of isolated psychological biases that analysts currently work with is anywhere near sufficient to explain this.
