Free Case Incident Essay Sample
There is agreement among psychologists that large fractions of individuals' social and economic behaviors are influenced by the decisions of others. These include decisions that occur in everyday life such as selling a particular stock, choosing a fashionable restaurant, and adopting a particular technology. It is true that herd behavior increases as the size of the group increases because of the impact and the power of influence the particular decisions carries with it along. This is also because an in individual will decide to follow the actions and decisions of his predecessors without regard to private signals (Asch, 1958), which in turn becomes more reinforced as the size of the group increases. The more the group increases in size, the more their decisions and judgment appears to an individual.
Whereas pack behavior may translate to a bundle of benefits for a group, the upside of such a behavior may become disastrous. Most people will discount the associated risks simply because others are involved in a particular action. In pack behavior, an individual chooses the same action, but may have acted divergently from one another if the realization of their private signals had been divergent. The upside of such behavior have been demonstrated from the examples of the housing bubble, the credit crunch, the MacDonald's, the Brick Back, Cafe41 and the Dental Floss.
Agree with Shiller on her analysis on the herd behavior. Rational individuals will respond to private signals especially when the actions of the majority peak at what is referred to as "irrational levels." This is not magical; the fact is that rational individuals will critically analyze the reasons behind such low bidding prices as seen in the case of the housing bubble. Organizations can combat the problems resulting from herd behavior responding to private signals, analyzing their strengths and weaknesses and paying cognizance to prevailing market situations.