Herd Mentality
Herd mentality is following the crowd rather than independent analysis, contributing to bubbles and crashes.
Exam Tip
Herd mentality drives bubbles and crashes. FOMO and social proof are key drivers. Contrarian strategies often outperform at extremes.
What is Herd Mentality?
Following the crowd instead of independent analysis.
Causes
- FOMO (Fear of Missing Out)
- Social proof
- Safety in numbers
- Career risk
Market Cycle Herding
- Late bull market: FOMO drives inflows
- Panic phase: Mass selling, capitulation
- Market bottom: Maximum pessimism
Contrarian Advantage
Research shows contrarian strategies often outperform during extremes.
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Related Terms
Overconfidence Bias
Overconfidence bias is overestimating one's knowledge, abilities, and forecast precision, leading to excessive trading and under-diversification.
Confirmation Bias
Confirmation bias is the tendency to seek, interpret, and remember information that confirms pre-existing beliefs while ignoring contradictory evidence.
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