How Herding Behavior Affects Our lives

Xu Rui(Beijing-Dublin International College, Beijing University of Technology)

Abstract

Herding behavior is an important part of behavioral finance study. In this paper, I focus on the literature reviews of herding behavior along the timeline and explore how it affects our lives. Herding is a double-edged sword with various impacts. I conclude three possible explanations for herding actions based on regret aversion bias, group mind theory and Emergent Norms Theory. The historical evidence on social and economic impact including asset price bubbles, subprime crisis is presented. Although these negative impacts are serious, herding can improve decision-making for people who are less likely to be biased by regret. Herding may also accelerate society's development if we choose the right leader. Finally I would discuss several measures to ease the negative effect of herding behavior.

Keywords

Behavioral finance; Herding; Economic impact

References

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DOI: http://dx.doi.org/10.26549/jfr.v1i1.382