Herd Mentality

What is Herd Mentality Bias?

Author: Matthew Retzloff
Matthew Retzloff
Matthew Retzloff
Investment Banking | Corporate Development

Matthew started his finance career working as an investment banking analyst for Falcon Capital Partners, a healthcare IT boutique, before moving on to work for Raymond James Financial, Inc in their specialty finance coverage group in Atlanta. Matthew then started in a role in corporate development at Babcock & Wilcox before moving to a corporate development associate role with Caesars Entertainment Corporation where he currently is. Matthew provides support to Caesars' M&A processes including evaluating inbound teasers/CIMs to identify possible acquisition targets, due diligence, constructing financial models, corporate valuation, and interacting with potential acquisition targets.

Matthew has a Bachelor of Science in Accounting and Business Administration and a Bachelor of Arts in German from University of North Carolina.

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Reviewed By: Christy Grimste
Christy Grimste
Christy Grimste
Real Estate | Investment Property Sales

Christy currently works as a senior associate for EdR Trust, a publicly traded multi-family REIT. Prior to joining EdR Trust, Christy works for CBRE in investment property sales. Before completing her MBA and breaking into finance, Christy founded and education startup in which she actively pursued for seven years and works as an internal auditor for the U.S. Department of State and CIA.

Christy has a Bachelor of Arts from the University of Maryland and a Master of Business Administrations from the University of London.

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Last Updated:May 5, 2022

Herding is term used to describe behavior, very commonly used in behavioral economics. It suggests that human beings tend to operate in groups and are unwilling to go against the general consensus.

There have been many different theories surrounding herding, one of the most well known being cascading which says that all it takes is one well-informed investor to make a decision to cause all investors to follow him, on the assumption that he knows best.

An excellent example of herding is the 2008 sub-prime crisis. The assets backing CDOs were clearly extremely low quality, but because everyone was doing it, most investors decided to just buy them.

 

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