Do you just go with the crowd?
Question: I am many times clueless when it comes to shopping. So to be a smart shopper, I rely on the product ratings of other people, especially when I am doing online shopping. Am I doing the right thing?—asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.
Answer: It is natural for you to follow the collective wisdom of the crowd because that is how your brain evolved. Social synchronicity or peer pressure is not necessarily a bad thing because in the early days of man, it meant a greater chance of survival.
Today is a far cry from the rough and tumble world of the caveman. But that evolved need to conform exerts a pull probably as strong as gravity itself. Conformity is a form of mental shortcut that promotes efficient use of the brain, something that the brain also automatically does for survival. The less energy that the brain expends means there will be more energy for the other parts of the body. Research shows that the brain uses up 20 percent of the body’s energy.
When you enter a restaurant for the first time, what is the automatic thing that you ask the waiter when you are about to order food and drinks? I am almost sure you would ask for the bestseller, right? When you are looking for a good book to read or a movie to watch, top grossers definitely catch your attention.
We rely on the collective wisdom of the crowd, especially when it comes to deciding on practical matters like with buying shampoo and toothpaste. We also rely on the collective wisdom of the crowd when it comes to health matters like what remedy is best for a certain illness.
The need to conform is very obvious when it comes to applause during a milestone speech of a political leader. After each important statement within the speech, that leader’s close followers will give the applause; some will even stand up. Out of courtesy, others in attendance who may not be strong followers will still mimic the applause and also stand up.
But there are times when people go against the crowd. This is when the need to stand out exerts a much stronger influence. With the speech of the political leader, it is people in the opposition party who will most likely not applaud even if they agree with the statement. Why? Because they are also doing their own social conformity of opposing anything and everything that the current political leader says.
Yet pure non-conformity also exists like in fashion. Don’t you just hate it when you see some stranger in the mall wearing exactly the same outfit you are wearing?
The need to conform is so strong that it is present in almost all occasions for decision-making, even if we know that the crowd may be wrong. This is evident with money management, particularly with investing.
People who do not make it a living to earn money from investing will more often than not go with the crowd. In fact, some say that the true value of a company is its market price per share because that price is based on the collective wisdom of all investors in the stock market. Yet the richest of investors give the golden advice that you should buy a stock that investors have not yet focused on; or if they have, is being valued at a price much lower than what you perceive it to be based on your own solid research.
But the brain says, “It is more difficult to do my own research than just following the crowd. And that’s the crowd where there is safety in numbers. So how could I go wrong if everyone else is buying the stock?”
How? By just blindly following the crowd.
As mentioned, following the crowd has its advantages. You just have to learn when to draw the line; when the disadvantages outweigh the advantages, when the weight of your own unique needs far outweigh the perception of the crowd.
In the case of online shopping, you can still use as a filter the ratings given by previous buyers. But if comments are available, try to read the comments of those who gave the lowest ratings. That way, you get opinion on what you are looking to buy from all sides. And picture yourself owning whatever you are looking to buy and see if it will really fit or suit you. Otherwise, you may just be throwing away your hard-earned money.
To know more about the psychology of money, visit our website at www.personalfinance.ph for the free tools. And if you want to learn more about the subject, attend our Financial Planner’s Training program. Details are in www.personalfinance.ph/fptraining.html.
Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-5050709 or emailed to [email protected]. To learn more about personal financial planning, attend 57th RFP program on Oct. 1-Nov 19. For more details, inquire at [email protected] or text <name><email><RFP> at 0917-9689774.
