ABOUT THIS EPISODE

Human beings are social animals, notes economist Michelle Baddeley, and as such the instinct to herd is hardwired into us. And so while this has changed from (in most cases) physically clumping into groups, it does translate into behavior linked to financial markets, news consumption, restaurant-picking and Brooklyn facial hair decisions.

In this latest Social Science Bites podcast, Baddeley – a professor in economics and finance of the built environment at University College London -- tells interviewer David Edmond how modern herding often follows from an information imbalance, real or perceived, in which a person follows the wisdom of crowds. The decision to join in, she explains, is often based an astute reading of risk; as she quotes John Maynard Keynes, “It’s better to be conventionally wrong than unconventionally right.” As a real world example of that, she points to the plight of the junior researcher, whose career is best advanced by serving up their innovative insights along conventional lines.

Apart from reputational damage control, there are pluses and minuses to human herding, Baddeley notes there are advantages to finding safety in numbers: “It’s a good way to find a hotel.” But there are pernicious outcomes, too, like groupthink. In that vein, the economist says she finds partisan herding “more prevalent in a ‘post truth age,’” as individuals join thought groups that reinforce their existing world-view. And it doesn’t help, her research finds, that people are more likely to herd the less well-informed they are.

This has also had dire consequences in financial markets (Baddeley was principal investigator on a Leverhulme Trust project focused on neuroeconomic examination of herding in finance), where pushing against the grain makes for a short career for anyone other than the luckiest professional stockpicker.

Baddeley’s early education was in Australia and her first professional work was as an economist with the Australian Commonwealth Treasury. She then completed masters and doctorate work at Cambridge. Her most recent book is 2013’s Behavioural Economics and Finance  and other works include Running Regressions - A Practical Guide to Quantitative Research (2007) and Investment: Theories and Analysis (2003).

English
United States

TRANSCRIPT

00:00:01they see social science box with me David at social science bites is a series of interviews with leading social scientists and is made in association with say we'll hurt animals that is to say most of us for the kraut we watch what others do and behave in the
00:00:19same way one and is this an instinct we should try to suppress we show badly isn't a communist at the institute choice in the university of South Australia sometime ago she took a singular decision to specialize in the hood Michelle badly welcome to social science by thank you
00:00:38for inviting me the topic we're talking about today is hurting what is hurting hurting depends on your discipline but for an economist it's defined in terms of when people have incentives to go with the group versus not say for example the group or other people might have more
00:00:59information the then you have and so if it's an incentive to follow along behind them because they might be better informed and so therefore not case heading happens when you've got Scott private information and then you see the group going in another direction and she followed the group
00:01:15Robson following your own private information so close to where I used to live there with two bombings they looked exactly the same to me one was always full I'm one was always empty I had no private information but I was tempted to go to the one that was
00:01:32always full would that be a case of me following the hurt that would be a case of you following the hood and it would come down to a more general definition and some of the economists use in terms of someone has some sort of prior information to start
00:01:47off with but that would be heading as well and heading often has more traction in a situation where people are not so well informed it seems pretty obvious that we all these kinds of creatures that we do follow the hood but what's the evidence for that this a
00:02:03range of evidence over a number of years from a range of social science studies the first one that's been quite influential is by Solomon Asch in his line experiment and with this line experiment he got together groups of say twenty experimental participants one would be a genuine experiment
00:02:23participant in nineteen would be experiment Confederates in cahoots with the experiment and what he and his team found was that when people were asked to judge the length of line so they're asking to compact a series of three vertical lines with one horizontal line and say which ones
00:02:40matched when they nineteen experiment Confederates gave obviously the wrong on so a good proportion of the genuinely experimental subjects would change their mind so they be persuaded by the group to head towards the wrong ons even that was quite a simple question where they should easily be able
00:02:57to get it right if they hadn't had this misleading social information more recently there's a range of experimental studies in economics as well as psychology showing that people tend to follow of the people in the prices sequential social learning said saying that your bar example a common example
00:03:16is restaurants you follow your pre to cesa into a restaurant because your balance saying your private information against social information on a range of experimental studies have shown that to be true and in some experiments that I've done myself with various colleagues in terms of showing what's the
00:03:35probability that some will follow the group will not well it's fifty fifty if there's no Headington Seattle but what we found is maybe about seventy percent of decisions tend to follow along behind what others are doing can you describe those experiments that you yourself of conduct was some
00:03:51of the most interesting ones was some years scientific experiment side did in collaboration with bull from Schultz group at the university of Cambridge and we did some brain imaging studies or find out %HESITATION decision making tasks and tweak gave the experimental participants information about what a group of
00:04:11four other people have done had they pull to shadow or not bolted and we looked at then your role responses in the press is making this decision said seventy percent of people that say %HESITATION substantive decisions they were following along with the great they were doing what the
00:04:25group is doing and what we found was that there was certain neural activations associated with that particularly connecting up with the wood processing and said that led to a series of papers around social learning more generally and how it links him with near sunset and a growing subject
00:04:44and it comes from your economics which combines the economics of that your son I can see one obvious reason why we would follow the crowd we would assume that the crown old knows something that we don't and it would be sensible to take advantage of that knowledge that's
00:05:00right said that would be the informational reason and threw out will not any social sciences but the next science as well the behavioral ecologists for example would talk quite a lot about the social learning this informational influence that you see in the animal kingdom as well as amongst
00:05:15humans but there are other reasons as well so maybe the three other reasons why people might have an incentive to follow along behind others one would be reputation so going back to John Maynard Keynes to paraphrase his idea that he applied in financial markets that it's better to
00:05:31be conventionally wrong the non conventionally right so if you say our trade %HESITATION and you make an unconventional decision and you lose you know couple of million pounds on a trade then you're likely to suffer great loss of reputation may be due to a job if you make
00:05:48a similar decision but everyone else is agreeing with you then you use this sort of security in saying what everyone else makes a mistake and so it's less risky for you said being a contrarian is that she quite a risky thing to do in terms of your reputation
00:06:02so reputation would be one reason another reason that we become an in behavioral finance would be in terms of explaining a speculative bubble such as to let mania went to let bulbs prices rose very rapidly that if you buy into a rising market you following others in buying
00:06:17into a rising market but the trick with that is getting the time right for example we do a bit of work on heading in housing markets and that might exhibit similar tendencies that people will buy into market if they think that others a buying into that market the
00:06:29same time so that might be price gains from that those first three reason which reflect a sort of more cognitive deliberate of prices going on bed a for the set of reasons would be all around in evolutionary terms more basic instincts in terms of our responses to great
00:06:43pressure we have an instinct to go with the group and to conform without this that is hardwired within us as social animals that probably goes back quite a long way in yvolution history turns I'm pit pressuring clues I guess things like fashion so that if everybody's wearing a
00:07:00particular pair of jeans that season then I wear the same pair of jeans that straightened say for example the psychologist le Bon is famous for talking about the crowd psychology set the crowd to develop some sort of identity of its own that's beyond the individuals within it and
00:07:19sewed fashions and fads would be an example it'll say it's it's actually quite interesting as well that this is sort of folk contrarian is some way you say for example the hipsters they might be different from the average person but at all that she different from each other
00:07:34in terms of hurting more generally it's about a social consciousness some was he was truly a social would wear whatever at random they wouldn't be a hipster I presume that we'll all susceptible to following the herd two different degree and I'm assuming that for example the experts in
00:07:56a particular area is not so liable to for the hood because they have strong individual sources have been formation that they comply yes an old all things being equal that would be true because the expert has more private information so any sort of social information is less likely
00:08:13to have an influence on them because that by definition hopefully well informed and so in terms of the informational recent for hurting fed the X. but would be less susceptible in that sense but then you've got all the other reasons for hating on so experts have incentives to
00:08:29follow a conventional view so if you think of a junior researcher he's wanting to publish in the top journals because that way they get a good job they get ten yet Sacha then they're going to want to do work that is sufficiently original to make people notice but
00:08:45is none the less somewhat conventional because otherwise they won't get published in the top journals and said this is sort of pasta pendency that that's probably reflecting incentives linking it to reputation reputation building by following along the conventional view and that some people would argue that's been a
00:09:01big problem with economics in recent years that the incentive is to follow along behind the conventional view and if you have a less conventional few then you'll much much less likely to get published in the top journals and therefore much much less likely to get it atop tenure
00:09:17track job although it's also the case that if you really want to make a fortune on the money markets or if you really want to stop the show that petition in academia you have to adopt policies and positions that are very idiosyncratic which brings in another dimension that
00:09:33we haven't talked about so far and that is the dimension of risk hurting and all sorts of different ways and may be it has yvolution recruits heading is about safety it's about safety in numbers and so someone who is quite risk of us will tend all things being
00:09:48equal to go with the herd where someone is bit more of a risk taker you know it's the risk reward trade off they take the risks they get the rewards they take the risk by rebelling by being contrarian then they can do a lot better out of that
00:10:01so whether it's a scientist to come sep with some new maverick view or hypothesis about the world whether it's a financial trader pet scans the market and make spectacular gains from that yeah the risk taking is the contrarian approach a digital question we live in the digital world
00:10:19always has to be digital question these days is her behavior more prevalent in the information revolution than it used to be in many ways it would be and this is a theme coming up more more in the discussion of the pastries age that we do a lot of
00:10:34stuff on social media on Facebook we use Spotify everything is sort of reinforcing a pre existing world view and so with social media when we're on Facebook even when we're on Twitter with tending to follow along behind around friends or %HESITATION and colleagues people already shell world view
00:10:53that would tend to reinforce all and world view search terms like following the herd is something we need to be careful about it sounds like it can be very dangerous if it's confirming attitudes that we already possess and isn't challenging us herd behavior is something we should try
00:11:13and undermine in some way I think it depends on the situation so hurting is not a good or bad in some situations it can be quite a rational sensible thing to do so for example again coming back to the the social media outlets it's a good way to
00:11:30choose a hotel if you follow the crowd on trip advisor and the various review sites they cannot should be really very helpful so in that sense you can learn from others but in other contexts can be quite dangerous if the hood is going down the track of false
00:11:45news for example so I don't think this Eddie normative element whether it's the right to wrong thing to do depends very much on the context what then the policy implications well one of the key policy implications is in terms of the extent to which the experts advising policymakers
00:12:03susceptible to group think said this is something that the department of defense for intelligence and United States the Pentagon a quite interested in and said they had a recent workshop in which they had a session on group think and the idea that when X. but so too affected
00:12:19by this sort of echo chamber idea the difference just agreeing with one another what can you do about that but one solution to that is to have something called the devil's advocate which is very cool job description but a person whose job is just to argue with other
00:12:34people in finances well in financial regulation that something that the financial conduct authority in some recent research I did for famine collaboration with colleagues looking at that sort of a solution as well and also if people are more aware of the bosses to which they're susceptible they can
00:12:52do more to overcome and say just having plenty of workshops in which experts get to learn more about the susceptibility to group think hurting when it's good when it's bad it could be a solution to some of those problems describe yourself as a behavioral economist but it seems
00:13:12that you're bringing to ban all sorts of other disciplines into your work psychology sociology anthropology yvolution biology evolutionary biology neuroscience behavioral ecology I mean that's the really fascinating thing about hurting it types back into the idea popularized by Daniel Kahneman about systems thinking said this the cognitive collaborative
00:13:36faces the more emotional instinctive and I think cutting can be explained in terms of the interaction of both sometimes for example if we follow others because we believe that better informed that small cognitive and deliver to that small what Khan would turn the system to thinking where did
00:13:51other times we just joined a crowd full of fat or fashion quite instinctively than that small system one thinking said that's really fascinating thing about it's not just a topic that one subject area has the monopoly on inside the insights come from all over the place natural sciences
00:14:10as well as a social science are you hurt at yes I probably am not to waste but possibly more the mice and maybe that's why I'm so interested in it I think I probably an informational Hooda maybe because I know about these informational theories of hurting but I
00:14:28do find now that I will tend to look at what a crowd is doing and think well maybe they know more than I do so this couple examples of this enough new costumes south London and that the underground line three two platforms for the train is leaving and
00:14:46you can't see the train from the top of the status and so what I do is I just look at where the crowd is going I just follow the crowd and that going to the platform with the train is ready to go so that's one another ace with
00:14:59cash machines and you see a long queue behind one cash machine and I Q. behind another cash machine I was sick with the must be something wrong with the cash machine behind which there are no people you know either it's over charging or it's broken and I have
00:15:15sometimes tested that and gone to the cash machine that has an IQ behind it and yes usually it's because it's broken off I get lost in traffic and following up the because if you lost can be a helpful way to get back to the main road but it
00:15:29doesn't always work Michelle badly thank you very much thank you thank you very much spin a pleasure social science bites is made in association with say for more interviews go to social science space dot com

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