See Also Illusion of Control (Ch. 17) Coincidence (Ch. 24) False Causality (Ch. 37)
See Also Illusion of Control (Ch. 17) Coincidence (Ch. 24) False Causality (Ch. 37)
data: ‘If you multiply the percentage change of the Dow Jones by the percentage
change of the oil price, you get the move of the gold price in two days’ time.’ In
other words, if share prices and oil climb or fall in unison, gold will rise the day
after tomorrow. His theory worked well for a few weeks, until he began to
speculate with ever-larger sums and eventually squandered his savings. He had
sensed a pattern where none existed.
Social proof, sometimes roughly termed the herd instinct, dictates that
individuals feel they are behaving correctly when they act the same as other
people. In other words, the more people who follow a certain idea, the better
(truer) we deem the idea to be. And the more people who display a certain
behaviour the more appropriate this behaviour is judged to be by others. This is,
of course, absurd.
Social proof is the evil behind bubbles and stock market panic. It exists in
fashion, management techniques, hobbies, religion and diets. It can paralyse
whole cultures, such as when sects commit collective suicide.