Group (un)Think

What is “Social Proof”?

Photo: Petr Kratochvil. Source: Public Domain Pictures

“Social Proof” happens when we rely on the views of group we’re with to form our own opinions. Everyone is strongly influenced by people that they’re with. A researcher once had some college students match the length of a line on one card to one of three alternatives on another card. When subjects worked alone, almost all of them made the correct choice. But when they were put into a group that had been instructed ahead of time to deliberately select the wrong line, over a third of the subjects would “go along to get along.” They made the wrong choice, too – despite their misgivings. They didn’t want to be disagreeable.

For investors, it can be dangerous to “go along.” We need to do our own research and form our own investment plans – plans that work for our own personal circumstances. If everyone thinks alike, someone isn’t thinking. How do we avoid acting like a herd of lemmings charging over a cliff?

One way to avoid social pressure is to write down your decisions. Researchers found that subjects who committed their conclusions to writing before they discussed them were far more likely to stick to their guns rather than be swayed by the group. A journal is also a good way to review what you do and why. Our memories often play tricks on us.

Another way to maintain independence is to be positive and polite. Disagreeing doesn’t have to make you disagreeable. If you have good relationships, you’re more able to ask tough questions and challenge the consensus without being obnoxious. A strong team knows how to respect each other’s differences and still stay cohesive.

Photo: Rawpixel. Source: Pixabay

People work together because we want to. We can accomplish a lot more when we cooperate than we can by ourselves. When we know we’re respected, we’re far more likely to use our disagreements as way to make our groups even stronger.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-05-09T06:03:37+00:00May 9th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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