Herd Behavior

What is Herd Behavior?

Herd behavior occurs when people converge on choices because they follow or respond to what others do. A crowd forms, and the crowd itself becomes part of the reason more people join.

How herd behavior works

Imagine choosing between two unfamiliar restaurants. One is full; the other is empty. Following the crowd can be sensible if other diners know something you do not. But if everyone is choosing by watching everyone else, the crowd may contain less information than it seems.

Bikhchandani, Hirshleifer, and Welch (1992) model one mechanism called an informational cascade. After observing earlier choices, a person may rationally follow them while setting aside private information. The resulting conformity can be fragile when new information arrives.

Why herd behavior matters

Following others can save effort and spread useful information. It can also spread mistakes. The question is whether other people's actions add independent information or simply repeat an earlier choice.

Similar choices alone do not establish herding. People may independently respond to the same evidence or incentives. The term is also used for coordinated behavior in animal groups, but fish moving together and people inferring a restaurant's quality need not share the same mechanism.