Herd Mentality Research Paper

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Herd mentality in Economy
Traditionally, herd mentality was a phenomenon associated with animals. However, today herd mentality is associated with human behavior as well. It was in 19th century, French social psychologists Gabriel Tarde and Gustave Le Bon talked about herd mentality in their writings; additionally, Sigmund Freud and Wilfred Trotter have studied the Herd behavior . Herd mentality can happen in almost in every aspect of life, such as politics, economy, culture, religion, social life; ranging from big ideas such as nationalism, communism to very small ideas such as cloth style. It also can be dangerous in almost every aspects mentioned before. Hence, my aim in this
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One of the reasons is what is called present bias. Meaning people tend to focus on today rather than tomorrow and “prefer to spend [their] money immediately rather than later when [they] are more optimistic [about the economy]” .ء Additionally, vice versa is true; in the Paradox of Thrift of John Maynard Keynes claims that when there is an economic recession, people begin to save their money instead of spending it. He argued that this is a wrong thing and people should consume more otherwise the aggregate demand will decrease as well as economic growth . Moreover, “Research shows that we compare ourselves with others. If we have fewer financial resources available to buy assets, goods or services compared to the others, we may try to close this financial gap by simply borrowing” . In other word, we want to have what others have even if we know we cannot afford it by our own money. Another reason people follow the herd mentality is due to positive stories people hear from each other. The positive stories has a great role in pushing people to enter into the bubble. For example, “An article from Ladies’ Home Journal in 1929 was titled ‘Everybody ought to be rich’. Not only were waitresses, taxi drivers, barbers and shoeshine boys giving stock advices, but also well-known economists were sucked in by the hype” . Furthermore, when information and data are hidden from public, people act based on other thing …show more content…
Following the herd mentality is a risk, because if other firms or the market make lose, your firm will also face the loss or the problem. Also, it is a loss of resources, time, and effort, if the business did not success. It is an opportunity cost. The person could have chosen a better business or used the resources in a better investment that could make profit and have a successful business. It is the decrease in profit, because when more firms enter the market, it means more competitions will occur. Then, the firms will eventually lower the price to attract consumer and this means the decrease in profit. This people will change their business more repeatedly. If they see another type of business is or becoming profitable at a certain time, they will change their business to that business and this leads to more cost and

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