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Herd behavior in Tough Times “If everyone else jumped in the lake, would you follow them?” As a child, this is the question my father used to challenge me with often. It seems he was predisposing me to be willing to be different. This round of tough times has encouraged me to reach deep into my background in psychology to ask how so many smart people got seduced into stupidity. The obvious answer and remedy involves herd behavior. In our primal days, running with the herd was necessary for safety from predators. As we evolved, learning from each other encouraged herding. Today, neuroscientists studying brain activity demonstrate when the fear center of the brain lights up during periods of uncertainty we begin to doubt our own decisions and seek the reassurance of the herd. Economists witness this in trends in the financial markets. Here’s the problem: By the time the herd has heard the news, it’s too late! By the time everyone got the news of the high-tech, gold and real estate bubbles, they burst and most people got burned. Following the herd in this case cost millions of people trillions of dollars. There is cause for optimism. Everyone knows there is a bad economy. The herd has heard the news. Logically, this means the recessionary bubble is about to burst and we should be on our way to recovery. This is a good thought to carry around with you. Imagine how your sales activity would change if you began your days with the expectation good things were about to happen. Understanding herd behavior explains many phenomena we see in business including a paradoxical failure to differentiate, hunkering down in tough times and running for the safety of the herd when bold action would give you a sustainable competitive advantage. So, if everyone else jumped in the lake, would you follow? I forgot to thank my Old Man for his sage advice. Thanks, Dad. |
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