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Why your brain wants you to follow the crowd.
20 July, 2021
- What can monkeys teach us about stock market bubbles? It turns out that monkeys make decisions much like investors on the trading floor—they develop a herd mentality, mimicking the behavior of others until overinflation and the eventual pop.
- "This tendency to follow the herd emerges from our social brain networks," explains Michael Platt, professor of neuroscience at the University of Pennsylvania. This network allows us to learn and adapt based on information from those around us. But these learnings are not always positive.
- In the context of money and the stock market, following the herd could result in bad financial decisions. The key, Platt says, is learning to take a step back and resist impulses, which in some ways goes against our evolution and the way our brains work. "There's a trade off between speed and accuracy in decision-making," he says. "If we could slow people down, that would allow more evidence to accumulate, and they're more likely to make a better decision."
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