Why are people tempted to follow the herd? And why can that be a mistake when it comes to investing?

By Fidelity International (reproduced with permission)

Social proof is when people follow the actions of others in an attempt to reflect the “correct” behaviour for a given situation. This urge to conform to established patterns or to follow the lead of perceived authority figures, trendsetters or simply people “in the know” is the social glue that binds people into a herd.

Social proof is the underlying psychological bias that results in what we recognise as “groupthink” (or “risky-shift”) behaviour.

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