Social Factors

Cultural and social factors also impact our behavior, as we are affected by social conformity, authority, and information cascades. These biases explain market bubbles, viral spending trends, and herd behaviour.

Availability Cascades

The more a story is repeated, the more important it appears, in a self-reinforcing process. This can be illustrated as follows:

Communal Reinforcement & Groupthink

Communal Reinforcement refers to mutual reinforcement through exchange of information (social learning) and it often goes along with confirmation bias. Groupthink, on the…

Fairness and Justice

Financial decisions can be affected by considerations of fairness and loyalty, resulting in either abstaining from or favoring particular choices.

Greed and Fear

Fear in financial decisions may result from the unknown, from change, or from the possibility of collapse. When combined with greed, it can lead to increased risk-taking. In…

Information Cascades

This bias can be summed up as “maybe everyone else knows something I don’t” and it occurs when individuals follow the actions of others while ignoring their own information.

Obedience to Authority

Obedience to authority in a financial context means following expert advice even when the data or our views say otherwise. We therefore trust the expert’s status as a…

Social Contagion & Conformity

As a society, we have a tendency toward conformity that is so strong it can lead intelligent, well-meaning people to be willing to call white black.

Status, Envying and Social Comparison

This bias relates to buying products out of jealousy, to boost self-esteem, resulting from the prejudice comparisons create.