what is herd instinct 
the term herd instinct refers to a phenomenon where people join groups and follow the actions of others under the assumption that other individuals have already done their research herd instincts are common in all aspects of society even within the financial sector where investors follow what they perceive other investors are doing rather than relying on their own analysis 1in other words an investor who exhibits herd instinct generally gravitates toward the same or similar investments as others herd instinct at scale can create asset bubbles or market crashes via panic buying and panic selling understanding herd instincta herd instinct is a behavior wherein people tend to react to the actions of others and follow their lead this is similar to the way animals react in groups when they stampede in unison out of the way of danger perceived or otherwise herd instinct or herd behavior is distinguished by a lack of individual decision making or introspection causing those involved to think and behave in a similar fashion to everyone else around them human beings are prone to a herd mentality conforming to the activities and direction of others in multiple ways from the way we shop to the way we invest the fear of missing out on a profitable investment idea is often the driving force behind herd instinct especially in the wake of good news or after an analyst releases a research note but this can be a mistake herd instinct also known as herding has a history of starting large unfounded market rallies and sell offs that are often based on a lack of fundamental support to justify either herd instinct is a significant driver of asset bubbles and market crashes in financial markets 2 the dotcom bubble of the late 1990s and early 2000s is a prime example of the ramifications of herd instinct in the growth and subsequent bursting of that industry s bubble because this type of behavior is instinctual those who don t succumb to it can often feel distressed or fearful if the crowd is generally going in one direction an individual may feel they re wrong by going the opposite way or they may fear being singled out for not jumping on the bandwagon working with a financial professional may help you curb your herd instincts so you can make sound financial decisions human nature to follow the crowdwe all cherish our individuality and insist that we take responsibility for our own welfare by making decisions based on our own needs and wants but it is natural for human beings to want to feel as though they re part of a community of people with shared cultural and socioeconomic norms so it shouldn t come as a surprise to find that it s just a part of human nature to follow the crowd investors can be induced into following the herd whether through buying at the top of a market rally or jumping off the ship in a market sell off behavioral finance theory attributes this conduct to the natural human tendency to be swayed by societal influences that trigger the fear of being alone or the fear of missing out 1another motivating force behind crowd behavior is our tendency to look for leadership in the form of the balance of the crowd s opinion we think that the majority must be right or in the form of a few key individuals who seem to be driving the crowd s behavior by virtue of their uncanny ability to predict the future 3in times of uncertainty we look to strong leaders to guide our behavior and provide examples to follow the seemingly omniscient market guru is but one example of the type of individual who purports to stand as an all knowing leader of the crowd but whose fa ade is the first to crumble when the tides of mania eventually turn 