Bandwagon Bias

Bandwagon Bias

Bandwagon Bias 1280 720 Amanda Ragkousis

In the 80s, shoulder pads were in; in the 90s, grunge was all the rage; and, in the 2000s, bright coloured tracksuits took off.

We follow trends for a number of reasons. These include wanting to fit in or, more concerning, needing to follow a particular trend to be accepted within the ‘group’; finding an instant solution for personal style; and for those of us who want to impress others we deem to be cool. And, of course, some of us do not follow trends because it is a trend and we want to be unique and express ourselves in our own way – be it fashion, music, or lifestyles.

Trends are nothing new and can be explained by one of the most common behavioural biases – Bandwagon Bias.

The Bandwagon effect refers to the tendency people have to adopt a certain behaviour, style or attitude simply because “everyone else” is doing it. Some people may even ignore their own beliefs to fit in with the crowd.

Because everyone likes to feel included, when the majority are doing something, not taking part can make some people feel on the outer. Although this bias can be difficult to overcome, thinking critically about our actions and considering alternative options can help to manage the Bandwagon fallacy.

Here are some examples of Bandwagon Bias in our daily lives:
Bandwagon Bias and “Investing”

An investor demonstrating Bandwagon Bias may jump in and out of investment decisions at the slightest buzz. They may invest in companies that are popular at the time, rather than investing to meet their long-term objectives. It could be argued that this approach has more in common with gambling than investing.

Could Cryptocurrency be an Example of Bandwagon Bias?
Why could Cryptocurrency be an attractive asset to Bandwagon investors? – We asked Investment Analyst, Chris Reynolds.

Cryptocurrency is polarising– ask one person and they will tell you it is going to echo in a new democratised financial system. Ask someone else, and they’ll tell you that it is nothing more than an energy wasting way to launder money. But what is undeniable is that it has been of significant public interest over the past few years. Google Trends show that “cryptocurrency” reached its highest search volume in May 2021, corresponding with “bull runs” for Bitcoin and Ethereum.

While the low transaction costs, easy accessibility, and high volatility may be of interest to some traders, the proliferation of crypto podcasts, crypto YouTube channels, crypto “influencers”, and even cryptocurrencies themselves suggest that many people buying cryptocurrencies are doing so for the same reason people bought fidget spinners – because everyone else was going it.

Taking a step back from the crowd

Bandwagon Bias can be difficult to overcome as it is human nature to want to fit in with the crowd. However, always adhering to the latest social trends can be problematic as what may have worked for some, won’t work for all.

To overcome this bias, slowing down your reasoning process, thinking critically and independently, and considering alternative options are useful tools. When a new trend comes on the scene, take a moment to examine whether this choice is the right one for you and your circumstances.

When it comes to managing Bandwagon Bias and our finances, gaining proper education and guidance from a financial advisor may benefit you.

At Viridian, we empower our clients to achieve an optimal life by providing supportive insights that can help you avoid becoming a bandwagon investor, and instead focus on making decisions that will help you achieve your goals.

Amanda Ragkousis is a Senior Financial Advisor at Viridian Advisory.

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