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The herd instinct gets us all into trouble

“One thing this crisis has proved is that the herd instinct is alive and well and global. It led Bear Stearns and Citigroup and Lehman Brothers and AIG to believe that risk was a thing of the past, that housing markets could only go up and that unregulated mortgage-backed securities would forever yield unprecedented returns.
It led Spanish banks to Bernard Madoff and British pensioners to Icelandic banks. It led the world off a cliff with the great majority of pontificators agonizing not over millions of lost jobs today but how to feed and fuel an overheated globe in 2035.”

Roger Cohen, New York Times Weekly (1 February 2009)

Roger Cohen was reminding us last week in the NYT Weekly what sheep we all are. All it takes is the sound of a crowd running somewhere for us to join in the stampede. And usually, that crowd is going to end up in trouble.

As Cohen points out, the herd instinct is alive and kicking. One might have imagined that our supposedly evolving capacity for intelligent thought, and the huge amount of information available to us these days, would mitigate the need to run after the herd. Not at all. Once a stampede starts, we’re in. As Cohen points out, the news and information glut that we live in seems to stunt independent thinking. The worldwide rush into crazy credit and risky investments bears ample witness.

In Kenya, we know the herd instinct very well. It is what makes ordinary, law-abiding and generally sensible people turn into idiots when a tanker carrying petroleum overturns. Just because a few foolhardy desperadoes are seen scooping up the spilt liquid for personal gain, an entire village can come running up to join in. The consequences of this particular stampede have been seen by the nation, and are gruesome. Yet whenever another tanker falls over somewhere, the stampede will begin again.

The herd instinct is what makes Nairobi office-workers abandon their posts for hours just to go and look at a fire that has broken out. Not to help, mind you, just to gape with mouths open. And so when Nakumatt caught fire last week, the crowd of gawkers built up in such numbers that they blocked all the surrounding roads in the city and blocked the emergency services from accessing the burning building. All because the people in the herd didn’t want to miss anything.

The herd instinct made every Kenyan and his granny buy Safaricom shares last year. Each member of this herd thought he or she would make a fortune, and then rushed to sell when a loss was on the cards. This had very little to do with the company itself, and everything to do with the herd.

The herd instinct is at work as I write this article. News that there is about to be another fuel shortage in Nairobi has only one result: stampede! All car-owners hearing the news stop whatever they’re doing to rush to a station to fill up, just in case. The result? Traffic jams around every fuel station in town. Whether or not we were going to have a shortage before, we certainly will now.

If you want to be a herd-follower, good luck. You’ll need it, because stampeding herds always end up in trouble. It is far better to think for yourself, to assess a situation calmly, and to ask whether you really need to do something just because everyone else seems to be doing it. The herd mentality is what causes pyramid schemes, bubbles, and silly corporate fads. It is what makes bad situations worse. If more people embraced independent thought and resisted the pull of the bull-headed crowd, the world would be a better place. But that isn’t about to happen.

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