Following the Herd by Richard Thaler

Published on Author Kristoffer

This note is part of a collection of notes from the book ‘Nudge’ by Richard Thaler

Main Takeaways from Chapter

  1. Social influence come in three categories
    1. Information (doing what seems to work for others)
    2. Peer pressure (feel a need to blend in)
    3. Priming
  2. Conformity can lead us to wrong answers
  3. Group conformity is stronger than individual answers
  4. Pluralistic ignorance: a dangerous habit which holds back progress
  5. People are paying less attention to you than you believe
  6. The boomerang effect – performing better when you think you are below average

Humans are frequently nudged (influenced) by other humans. Smile and others will smile, yawn and others will yawn. We are continually being influenced both consistently and unconsciously by others.

In this chapter, Richard Thaler presents a collection of interesting conformity examples. This note is a summary of the essential experiments presented in the chapter.

 

Solomon Asch (1995) – Conformity Experiment

Experiment: Asch lined up a group of people who each was told to give a wrong answer a very basic question. One of the members of the group wasn’t informed about this and should therefore naturally be expected to provide a different and right answer from the others. The test showed that in fact the person did not answer correctly and gave the wrong answer because everyone else also seemed to be responding wrong.

Asch showed that when a subject sees other people doing something, then he or she will feel pressured to do the same. In the test of Asch, they were compelled to give the wrong answer.

Why will peoples answers not follow their own senses? This can be explained by information and peer pressure.

Information: If we assume that other people around most likely will have the right answer to a question then we are inclined to copy their response regardless of our own intuition.

Peer pressure: We fear of not being a part of the group and have a need to answer what everyone else is answering when they are watching us.

Experiments showed that when people are allowed to give anonymous answers, then conformity is reduced because peer pressure now will not have an effect. They now cannot see that we are providing a different response from everyone else.

 

Muzafer Sherif (1937) – Power of Groups

Experiment: People were placed in a dark room, and a small pinpoint of light was positioned at some distance in front of them. The light was actually stationary, but because of perceptual illusion called the autokinetic effect, it appeared to move. On each of several trials, Sherif asked people to estimate the distance that the light had moved.

Individual answer: When polled individually, subjects did not agree with one another, and their responses varied significantly from one trial to another.

Group answer: Individual judgments converged and a group norm, establishing the consensus distance, quickly developed.

 

Collective Conservatism

Muzafer Sherif’s experiment has been repeated countless times and gives a good understanding of why groups tend to stick to established patterns even as new needs arise. It can be defined as collective conservatism.

An important problem here is ‘pluralistic ignorance’ – that is, ignorance, on the part of all or most, about what other people think. We may follow a practice or a tradition not because we like it, or even think it defensible, but merely because we think that most other people like it.

 

Tom Gilovich – The Spotlight Effect

Gilovich carried out a test where a subject was told to guess how large a percentage of people during the trial could remember the look of the subjects t-shirt. The average guess from subjects was 46% while in reality, only 21% of the people remember the look of the subjects t-shirt.

It showed that people are paying less attention to you than you believe.

 

Robert Shiller – Social Contagion of Boom Thinking

Shiller argues that financial booms are created by the conformity effect. As the media endorses a positive view, people end up believing that they are in a ‘new ear’.

The price-story-price loop repeats again and again during a speculative bubble. Eventually, the bubble is bound to pop, because it depends on social judgments that cannot be sustained over the long-term.

 

The Boomerang Effect

Power customers in San Marcos in California were given smileys based on their energy usage. This is an excellent example of nudging people to change their behavior. Applying the principles of conformity.

An unhappy smiley indicated that the household had an above average energy consumption. These lead consumers to reduce their energy usage.

A happy smiley indicated that the household had below average consumption which led them to increase their consumption because they felt they had ‘room’ to consume more.

Regardless of the actual usage, the energy company could shift the energy usage by merely changing smileys.

 

Priming and the ‘mere-measurement effect’

Priming is one of the workings of the automatic system (system 1). Priming is when a small influence/stimuli create associations and start influencing our behavior.

Mere-measurement effect: When people are asked what they intend to do, they become more likely to act on their answers. In this case, the question will function as the ‘primer.’ The nudge can be just as strong in questions such as; “when do you plan to do it” and “how do you plan to do it.

The priming effect can also be found in objects. People will become unconsciously primed to be more competitive when seeing business environments with briefcases and boardroom tables. Smells play an equal part.

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