How does Greed, Fear and Herd Mentality affect humans?

by Ashvini on June 23, 2011 · 23 comments

in Business

We are primary governed by two emotions in our daily lives, fear and greed. While fear prompts us to avoid risk, greed involves often out stretching ourselves in order to make quick gains. They both bring out a mentality which probably has been ingrained in human brains from millions of years . It is called as herd mentality

Herd Mentality

Herd mentality describes how people are influenced by their peers to adopt certain behaviours, follow trends, and/or purchase items

Source:Wikipedia

Let me point out to you some well knows examples of Herd Mentality

Stocks

I think everyone is aware of how stock markets affect people. The general rule while investing( not day trading, investing) is that you buy low, wait for a few years and then sell at giant profits. This formula may not work all the time , but nothing better has been devised. Hence it comes out as the best formula to make good profits.
However , we see hordes of people selling while stocks are falling and buying when they are rising. It is exactly opposite of making profits.

A lot of booms and busts in recent 50 years across the world has shown that most of the people have lost money by betting on companies for much lesser time then it needs to create the value to be profitable.

Tulip Mania Prices

Tulip Mania Source: Wikipedia.org

 

The famous Tulip Mania

In Holland, in year 1637, prices of Tulip bulbs were pushed to extreme heights and prompted people to buy them at inflated prices. All was well till the prices came tumbling down and almost everyone lost their invested money.The desire to get quick rich was undoing of so many.

The Dotcom Boom in late 90s

Remember those days when just getting an idea could get you million dollars from venture capitalists. Thousands of dotcoms were launched in those days. Now you can count on your fingers how many are still there. The dotcom boom saw a lot of investor and venture capitalist money being wasted.

The social media bubble of recent times

The extremely high valuations of social media companies ( the kind of which are only commanded after years in traditional industries) may be an onset of social media bubble. Extremely high expectations and loud noises made about viability of social media businesses is leading up to building of this bubble.

So why does these bubbles occur? An interesting theory to as to why booms and busts happen is based on emotions such as greed and fear.

Human beings evolved from animals and I think it is an acceptable fact now(some would disagree :) ). Have you ever observed how animals act or react? They either need food or need to protect themselves from predators. The animal brain is attuned to survival and making most out of the recent situation. If we assume that humans evolved from these animals, the human brain still does not work different than animal brains.

Seth Godin calls it a lizard brain. A lizard brain is the brain of animal( which we already head) on which new human brain has grown upon. Unfortunately in times of crisis or opportunity, the lizard brain takes over and humans either become too greedy or too fearful.

When we are greedy we see opportunities that don’t really exist and when we are  fearful, we don’t  even want to look at anything useful.

Fear of losing everything

A great example of fear is when you see during stock market crashes. Stock Markets crash around the world in a matter of hours as if all fundamentals have gone bad in whole of the world. At that time, often in newspapers we see images of distraught stock brokers holding to their phones reminding us of the survivors of a sinking sip. It does not matter to them that stock market is up in a few months or even days. They have seen it many times before but they refuse to learn from the past.

Most of these traders often fear losing everything that they have got, in a market crash. From experience, everyone knows that it is not true. No economy will be forever down, no company will close because suffered a small hiccup on the way. ( Some do however as an exception) .

Fear also stops most of the people from taking risk. If someone is fearful of accident, he(she) would not drive and thus lose out on the fun and independence that comes with driving.

People do not take risks and become entrepreneurs even though they are capable and possess great ideas that needs execution. They wait for the right time until its too late. They fear that they will lose all their money and will not be able to survive once their venture does not work out.

Fear of being lesser than their peers in anyway

It is also called as “Keeping up with the Joneses” . It means that you are benchmarking your lifestyle based on what your neighbour, peer or co-worker has presently.

Often people are influenced by or mimic the behaviour of their peers , bosses, parents just to follow a well known path. While this may not be a particularly bad strategy , it does limit one’s option of making more money or living a more fulfilling life. It also puts them in comfort zone thus not utilizing their talents effectively.

It also stops them from taking risks because they see life as a race and they need to constantly keep up with the others.

Fear of the unknown and uncertain

Finally, the most dangerous fear detrimental to the progress of mankind. Thousands of people have been lulled and cheated by preachers on the promise of better future. The fear of uncertain ( losing your income, family, possessions etc) keeps most people from being their best. The uncertain is a like an invisible predator that may or may not strike later but is strong enough to induce paralysis in present world.

Though there are no evidence that what people think eventually happen or they have any control on things that do happen, people just refuse to take calculated risks and enjoy life on their own terms.

Greed

Greed

Greed is an excessive desire to possess wealth or goods with the intention to keep it for one’s self.

Source:Wikipedia

Greed is totally opposite of fear. Here the tendency is to hoard and not share your knowledge or possessions with the world. Greed also is tendency to make short term gains as a replacement to gains in the future.

Tendency of being greedy to make money in short amount of time caused immense havoc in the history.  Dotcom boom, mortgage crisis and booms and further recessions are big examples .

The Kahneman and Tversky experiment

In one of the experiment, Kahneman and Tversky postulated two scenarios.

Case 1:

Participants in the experiments were granted 1000$ each. They had to chose from one of the following options.

  1. They would be granted 500$ additionally if they chose to take it now.
  2. Or $1000 additionally but the chance of getting it was only 50%

Participants chose the less risky option ( 1) .

Case 2:

People were given 2000$ in cash and told to chose between

  1. Losing 500$ for sure
  2. Taking risk which has 50-50 chance of losing $1000.

Participants chose more risky option (2) .

This experiment showed that humans are indeed geared towards less risky, less uncertain future and also that people are more sensitive to losses then to gains.

Probably this explains why people still live in difficult relationships, jobs that do not provide satisfaction and risky entrepreneurial ventures.

It may also explain why people want to get instantly ingratiated( for e.g. using black hat SEO techniques to get more traffic to blogs, making unsavoury alliances to get more business and helping to increase corruption). It also tells us about the emotions that shape our thinking when we are dealing with real world.

Looking at this it is very clear that being an entrepreneur when surrounded by non – risk takers is almost a leap of faith.

Also some entrepreneurs may fail because they want to be called as entrepreneurs but still have not been able to overcome herd mentality which can bring long lasting success. How far such entrepreneurs last ? And how fast they rush back to security?

I hope I got across the important points that prevent human beings from utilizing their talents and taking calculated risks.

What do you think about the post ? Do comment and let me know .

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{ 20 comments }

Mark May 22, 2014 at 12:37 pm

What you say unfortunately is so true Ashvini!

But the really interesting this about the (so called) herd mentality is when you put a so called negative or pessimistic thinker (or thinkers) in a room or immerse them in an environment of dynamic cutting thinking entrepreneurs!

Then you’ll observe them fight tooth and nail-mentally- trying to go against the overall thinking of the herd!LOL! Odd behavior indeed!

So you have to wonder if (at least) part of the herd or group thinking mentality has to do with finding a kindred mindset that espouses their same negative defeatist attitudes!

In any event Ashvini you did an excellent job stating your case! This was a very enlightening post! And a great topic for some extremely lively discussions!

Thanks for sharing your thoughts!

Veronica Cervera October 19, 2011 at 8:43 am

In any business endeavor, especially in investments, it’s very important that one has the ability to think independently. This is the trait most successful entrepreneurs and investors have. And that’s why they succeed where most people fail. They learn everything that they can about the business and make decisions based on what they know, based on what works for them. There’s no way these people can be influenced by anyone or by any condition. And that’s the trick!

Adrienne July 6, 2011 at 9:57 pm

Hi Ashvini,

What an interesting post and you got a lot of great input from this as well.

I’m too aware of all the evil and the greed in this world but like the example that Carolyn gave about the patient helpers of those severely disabled adults. My brother’s mother-in-law is in an alzheimer’s facility and to watch those caretakers being so gentle with them just warms my heart. I definitely prefer thinking of all the good in this world instead of the fear and greed that is all around us as well.

There definitely is so much more in this world! :-)

Adrienne

Ashvini Kumar Saxena July 8, 2011 at 2:11 pm

Hi Adrienne,

Welcome once again and thanks for your comment.

Kudos to all people who help each other. We are really indeed indebted to them .
I wanted to bring out scenarios that why people are either scared to take a risk or they take undue risks. The present recession is because of greed of some people to make money fast. They took undue risk with money that was not theirs and thus brought whole of the world in such a perilous state.
On the opposite side, people do not take a risk at all because they feel they would lose everything and would never recover from it.
From our experience we know that most of the things we fear never happen at all. Also greed never pays and is more harmful. Unfortunately these both emotions still rule the masses educated and uneducated both.

Hope you are having a great day and thanks for comments.!!! Do come back

Adam Paudyal June 28, 2011 at 10:46 am

Appreciate the link luv on the blogroll brother!

Ashvini Kumar Saxena June 29, 2011 at 10:52 pm

My pleasure :)

Adam Paudyal June 28, 2011 at 10:39 am

What a great dissection brother!

Lizard brain takes over during times of crisis and opportunities. So very true.

Behaviors of people around us does affect our mentality; one more reason to surround ourselves with successful people and people that are motivated and dedicated to succeed.

Seth’s words and insights are amazing as always but overpowering lizard brain is by no means an easy feat (O: What do you say Ash?

Later!

Ashvini Kumar Saxena June 29, 2011 at 11:01 pm

Hi Adam,

How are you doing bro :) ?

You are correct when you say lizard brain is tough to overtake, sometimes too tough. With enough practice and experience we can train our mind to think positively and that is where interacting and meeting with positive people comes into use.

I wanted to raise awareness about the emotions that an entrepreneur goes through while he or she is just starting. I hope I was able to do that.
Great to see you here again. :)
Best regards,
Ashvini

Holly Jahangiri June 25, 2011 at 11:04 pm

I tend to be more risk-averse when dealing with other people’s money or well-being than if it’s purely my own gamble. I sometimes wonder, if I didn’t have a family, would I find skydiving more appealing? Maybe.

Ashvini Kumar Saxena June 27, 2011 at 11:02 am

Hi Holly,

I think you are fit and ready to go for skydiving and with your family in tow , you will have them cheer you on your touchdown. Go for it, I say :).

Carolyn@The Wonder of Tech June 25, 2011 at 7:00 am

Ashvini, I have to agree with Steven on this one. I am constantly amazed at how much altruism there is in the world, especially on the internet. You could focus on the evil and the greed, but you could also focus on the others who are giving and supportive. How about Wikipedia, that you quote often in this post? That’s groupthink of educated people who are willing to share their knowledge with others for free.

Tonight I was in the mall and saw a group of severely disabled adults visiting, accompanied by very patient helpers. I so admired the helpers who have the patience and kindness to take care of those who are less fortunate.

Yes, there is greed and fear. But there is so much more in the world!

JMHO.

Ashvini Kumar Saxena June 25, 2011 at 7:51 pm

Hi Carolyn,

Great to see you here again and thanks for commenting.

I am really very proud of people who go above and beyond these emotions. I stated in my post that there are so many people who have been able to give back to society. My post, being a little academic in nature, wanted to highlight that a lot of majority is still influenced by herd behaviour. It was about making people aware of the emotions. Once they are aware they can take positive steps to improve their lives.
I have met a number of people who say “I want to do something on my own but I dont have….. , I don’t feel…. ” . They are scared of uncertainty and taking that first step. By reading our posts and comments , if they get aware of what emotions they feel at different times, I think it served my purpose.
I hope you get my point :).

Have a great day and thanks for dropping by.
Ashvini

Mouh June 25, 2011 at 3:38 am

Great post Ashvini.

I do believe that there are other emotions that affect us, but fear is number one. That’s why many people don’t achieve great success. That’s why about 95% of the world wealth is owned by less than 5% of the world population. The generality of people don’t step out of the crowd. Very few take that risk.

Mouh

Ashvini Kumar Saxena June 25, 2011 at 7:55 pm

Hi Mouh,

You got it so right. Most of the people never make it, you know why? They never start. They are hold up by fear. Fear of uncertainty and pain that comes along. On the opposite spectrum are people who want to become quick rich and in the end they are fodder for scams.
The path to doing it right and making it to the top is somewhere in the middle ( hard work and independent thinking). Warren Buffet has talked volumes about patience and being steady.
My post was to bring awareness about human behavior and taking it from there.
Thanks you so much my dear friend for commenting.
Ashvini

Aswani June 24, 2011 at 11:14 am

Ashvini…great writeup! I couldn’t have agreed more. I can relate your article to many real life events especially the recent 2G Scam where you can find all these 3 evils coexisting. A very harsh reality indeed! The thing here is that it never looks easy to get out of the same. We have become used to this fear, greed, selfishness and herd mentality. The more we can do is to self-introspect on ourselves and see if we can get out of such attitude ASAP otherwise we are bound to suffer in the long run. The same thing is applicable for the budding entrepreneurs.

Ashvini Kumar Saxena June 24, 2011 at 6:46 pm

Aswani , my awesome friend. These are golden words. Everyone does mistakes and learn from it. No one is perfect sinner or saint but how much we learn from them to bring out positives in this world is the key.
Herd Mentality stops us from making rational decision and greed and fear make us run around for money. I think everyone should introspect as you said it.

Keep coming back my dear friend.
Have a great day
Ashvini

Wim @ Sales Sells June 24, 2011 at 6:22 am

Hi Ashvini, that’s a very meaty post you’ve got here!

I especially like your point about the social media bubble and how you link it to greed and fear. Social media are obviously important and have changed the way we interact online, but sometimes it seems like there are more social media consultants out there than there are users! I also don’t think social media is rocket science. If you just have a giver’s mentality and treat others as you’d like to be treated, you’ll go a long way.

Keep the good stuff coming!
Wim

Ashvini Kumar Saxena June 24, 2011 at 6:44 pm

Hi Wim,

It is so true that there are more social media consultants than users :). Giving is the opposite of hoarding and it takes a lot of character to give than just to hoard. That is why we see too many hoarders and so less givers.
The reason people become entrepreneurs these days is either following a fad or to make a lot of money quickly. So do make it but it is not a formula that works in all situations.

I am glad you like the post ( meaty ;) ).
Have a great day my friend.
Ashvini

Steven June 23, 2011 at 8:35 pm

We aren’t primarily motivated by fear and greed, that is only 1 side of the coin. We are also motivated by inspiration and love. Of course many of us still have primitive “lizard brain” instincts, but those can be subsided through conscious change.

Ashvini Kumar Saxena June 25, 2011 at 8:05 pm

Hi Steven,

Thanks for your comment.

I agree that it is one side of coin but indeed it is a side you would find a lot of people . It is difficult to understand that despite so many examples in history, people in general are still motivated to make a kill during good times and are too much afraid during bad times( both don’t last forever).

However changes can be brought through learning and experience, if people are aware of these emotions. Herd mentality is still a very common phenomena.
The purpose of discussion here is to make people aware of such emotions and then they can be introduced to positive emotions as you have mentioned.

There are thousands of examples of people with an open heart and independent thinking and I think they should lead the way.
Thanks for dropping by and hope to see you more here.

Best regards,
Ashvini

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