The Power of Conformity: Could this hardwired social behaviour be damaging your financial future?

Evolutionary Inheritance.

We are social creatures, those of us here who like to identify as human beings. This evolutionary inheritance provides us with the foundations upon which we understand 'what' we are as a species, bringing with it a wealth of behaviours, thought patterns and unconscious cognitive quirks.

In many ways, this inheritance is a wonderful thing. The urge to develop and maintain social bonds comes from a time where to be alone meant a life of danger, struggle, and ultimately a far higher chance of premature death. It was together that we survived and prospered as a species.

In evolutionary terms, the comfortable lives that many of us now have the privilege to lead is an incredibly small snapshot in our species' long journey, a footprint in the sand some-way up a very tall mountain. Despite this, it's plain to see how the wheels of progress have gone into absolute overdrive over the last two centuries. Life is constantly changing, yet we still use practically the same hardware - our brain - to approach designing an excel spreadsheet, as we did to hunt a wild board with a couple of friends and a sharp stick. Okay the software may get the odd update, but that processor is getting on to be a few hundred thousand years old at this point, I guess you can't beat the classics.

I find this thought to be particularly mind-boggling (ironic!), and it just goes to show the astounding levels of intellectual flexibility we have had the privilege to inherit. Having said this, there can come times where this wonderful inheritance of ours becomes a problem, in the context of our sometimes very strange modern activities.

Are you truly making the decision, or is Conformity taking the wheel?

When we make a decision to, for example, invest in Cryptocurrency 'A' or Cryptocurrency 'B', what questions do we ask ourselves? What cognitive processes contribute to the eventual decision to pledge our hard-earned money to either choice respectively?

Well, you may look at charts of previous behaviour, investigate what specific technology it implements, perhaps its team and stated objectives. These are all of course very important things to consider, and all no doubt play an important role in your final decision making - as they should.

Are these metrics however, completely objective? Of course not. Market behaviour, previous price points and overall performance is in many ways simply a numerical representation of the psychology of the masses. Past-performance does not indicate future levels of success.

'Focus on the fundamentals, not the hype'

I'm sure many of us know the feeling of seeing a particular investment - whatever form it may take - suddenly sky-rocketing, and thinking to yourself, I need to get in on this. It's a primal, gut instinct, a feeling right down deep in your chest. That, to a large extent, is conformity. It's hard-wired into our brains to want to be a part of these things: Success is right there, look how many people are making huge gains, I could be a part of that with just a few clicks..

It is hard to go against the grain. Research has shown that to go against this urge to conform incites the 'Danger' response within our brain, it's hard-wired. Instead we - by default - seek to garner and act upon two types of unique social ques:

• Informational cues - Descriptive information regarding the subject.
• Normative cues - Information regarding what actions to take.

Using these social-cues we adjust our behaviour to integrate within the social-norm.

How can we reduce the influence of this Phenomena?

The truth is, due to life's intrinsically social nature, it's near enough impossible to avoid conformity altogether, social influence is around every corner. The trick is in identifying when it may be leading our decisions more than it perhaps should and adjusting our actions accordingly. Listening to the community is not a bad thing, in fact I'd consider it as an essential part of responsible investing. However, by keeping the dangers of irrational conformity in mind, focusing on the fundamentals, and taking a logical, diligent approach to our investments, we can reduce the risk of us falling into conformity's trap.

Source material and further (Very interesting!) reading can be found at:

• https://www.psychologytoday.com/blog/insight-therapy/201012/you-are-conformist-is-you-are-human
• http://news.morningstar.com/classroom2/course.asp?docId=145104&page=1
• All artwork sourced from: https://www.pexels.com/search/database/

I hope you've enjoyed this post, as always any feedback (or just general chat) is more than welcome! If you found it bearable or perhaps even, dare I say, not bad? Then you're more than welcome to follow me for more bits and bobs from the world of Psychology.

Have a lovely day all!