On the stock exchange, many investors are not only based on numbers, data, facts and probabilities, but also on the behavior of other market participants. As a result, various social influences can have a significant impact on the stock market.
• Emotions have no place on the stock exchange
• Membership errors can cost private investors cash money
• Experts do not know what will happen tomorrow
For decades, economists saw people as a rational being, which always derives his actions from considerations of economic expediency. However, this so -called Homo Oeconomicus only exists in the theory models of economics and has little in common with the actual Homo sapiens.
The Homo Oeconomicus has had its day
The fact that the model acceptance of the Homo Oeconomicus can gradually be grave is thanks to the latest results in behavioral economics. This still relatively young sub -area of economics deals with human behavior in terms of economic situations. The most famous representatives of this discipline include the two Nobel laureates Daniel Kahneman and Richard Thaler.
The behavioral economy is officially considered a sub -area of economics, in reality this specialist discipline uses psychology, sociology and neuroscience. Accordingly, the behavioral economy for many observers also represents the Achilles’ heel of the classic economy.
Among other things, the central findings of behavioral economics include the fact that people often act according to predictable patterns and thus fall back on primitive rule of thumb and thinking, so -called heuristics, especially in situations of uncertainty. Such behavior is by no means rational and thus directly contradicts the basic assumptions of the Homo Oeconomicus.
The irrationality of man is due to evolution
Irrational behavior patterns due to various emotions such as panic and fear or greed and lust are by no means abnormal, but rather the rule. Because the human brain is not made for quick and rational decisions and stock market transactions, but rather for the wilderness. Accordingly, the human brain still works almost according to the same patterns as in the Stone Age.
At that time, for example, with a possible dangerous situation, it was not exactly advisable to weigh up all parts and night parts of an action in order to gradually make a decision. Because in the age of the hunters and collectors, it was much more appropriate to always follow their own group – if suddenly everyone ran, you ran after without asking. Such a behavior pattern was essential at the time and thus anchored itself very deeply in the human brain.
A behavior that brought a survival advantage in the Stone Age can now lead to total loss in our modern world. Because such panic reactions that still saved lives in the age of hunters and collectors can cost a fortune on the stock exchange. As soon as euphoria or panic are involved, it often becomes dangerous for the own money. Humans not only overestimate themselves, he also has a preference for emotional decisions, but they have no place on the stock exchange.
The herd instinct and its fatal consequences
The phenomenon of the herd instinct is one of the most famous heuristics that can be observed on the stock exchange. Especially when it comes to the development of speculation bubbles, this Heuristik plays a key role. Because in a phase full of euphoria and greed, many people begin to believe that the optimistic and confident view of things is the only right one, since it is also represented by all other market participants.
In this way, many investors, especially in euphoric boom phases, can be carried away and investments that they would never have made from a rational point of view. The mutual influence of the individual actors can cause curious market movements that are not related to the fundamental data.
The biggest problem of the herd instinct is the fact that the individual investor does not feel a direct responsibility for his actions, since he transfers this responsibility to the mass of investors in the collective sense. However, such an ignorance of reality will sooner or later go hand in hand with serious consequences or losses, such as in the case of the new economy crisis. As a consequence, almost any larger speculation bubble on the stock exchange can be attributed to the healing of the herd instinct.
Group thinking – a dangerous consensus
In addition to the classic heuristic of the herd instinct, there are other social psychological phenomena that can favor loss -making transactions, especially on the stock exchange. For example, the so -called group details, as a special case of the appearance of the social proof, can lead to a group of highly intelligent people strikingly idiotic decisions.
The phenomenon of group details is a special case that can be derived from the mass psychological effect of the social proof. Social Proof is usually understood to mean an informative social influence, which leads people to take on actions of others under the assumption that their actions are appropriate to the situation.
As with the herd instinct, the reason for the phenomenon of the social proof and group details in the evolutionary past of man is also. At the time of the hunters and collectors, I really worth it when you adapted the behavior of your group.
However, it does not necessarily pay off on the stock exchange if investors only follow the mass and accorden every current trend. On the contrary, there are precisely contrary action on the capital markets. So it is only worthwhile when investors act according to Rothschild’s motto: “Buy when the cannons thunder, sell when the violins play.”
However, as soon as there are phrases within a certain group, such as: “This time everything is” and are repeatedly repeated enough, a certain illusion can be built up, which the members of a group firmly believe in their own superiority.
Such an illusion also lost to the investors of Deutsche Telekom, who with their IPO dated November 18, 1996 sparked a real mass euphoria among German private investors. Since the euphoria of many investors knew no more limits at this point, the share, which was emitted for an converted price of 14.57 euros, climbed to a level of over 100 euros by March 2000. And even at this price level, many still believed in a further doubling of the share. In the end, however, the imagination of the investors dissolved in air and the share reached its provisional all -time low on September 30, 2002, at a price of 8.42 euros.
The rise and case of the T-share thus shows which devastating consequences of mass psychological phenomena such as the herd instinct or the group details can have on the stock exchange.
Authority -Bias – Okholargium assessments of experts
The authority bias describes the human tendency to follow the assessments of experts or to attach great importance to the opinions of authorities. This so -called belief in authority or authority is a property that is already learned in the course of human development and socialization. Even small children are trained that they always have to follow their parents and teachers’ instructions.
However, such a trained mistake can quickly lead to painful losses on the stock exchange. In their opinion, private investors in particular can often be influenced by apparent stock market experts and stock market professionals, who themselves can often only show a very sobering track record.
For example, at the time of the Telekom shares in 2000, shortly before the spectacular crash of the shares, there were still enough analysts, the price targets of up to 200 euros for the shareholders. Investors who followed the analysts’ advice at that time were partly involved in book losses of up to 90 percent. This example clearly shows what can happen if investors neglect independent thinking based on an expert opinion.
In this context, it can even happen that individual experts and analysts suffer from the heuristic of group details and thus influence each other with false assumptions. Because especially among analysts, this is quite common for not only the fundamental data of the respective company, but also the assessments and opinions of other experts and analysts. So it can happen that they adapt to the assessments of their colleagues and thus possibly decide against their own attitude.
Beware of defects!
The herd instinct, the group thinking and the authority bias are just three heuristics from an almost infinite universe of thinking and cognitive distortions that people fall for every day. As a result, investors should take enough time on the stock exchange in advance to thoroughly check their own thoughts and considerations. In the long term, only investors achieve high returns, which always act, emotionless and well -cared for.
Pierre bonnet / finanzen.net