When the mob makes you lose your sanity

by Pop on April 12, 2011

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This may be the last time you trust “reason” in a crowd.

There are many psychological defects that make us do dumb things with money. We chase performance in the stock market and feel pressure from the next house over to buy fancy cars.

If you’ve read any personal finance blog for more than a week, you’ve probably heard some sort of encouragement to “be different” and separate wants from needs, etc., and all that sounds like good advice.

Personally, I’m not so sure it is. Personal finance advice too often focuses on telling you what to do and encouraging you to do it. It sets up the “Do I buy a new Lexus?” scenario as a rational dilemma with a clear answer and path to follow while summarily dismissing wanting to look good in front of the neighbors as the silly purview of broke cattlemen with big hats.

I’m a much bigger fan of avoiding those defects, through using defaults (automatic savings, auto bill pay, auto portfolio re-balancing) rather than trying to counteract the defects will all that positive thinking. This post is meant to show why.

In short, I’m not so sure we can fight the herd.

ABC runs a show called “What Would You Do?” on Fridays. It’s one of those rare shows that’s actually lasted more than a few episodes, but you really only need the plot of one to know how the rest work.

In an episode I saw a few months ago, a few men and women were put through a mock frat or sorority initiation on a public street. The activities were rather extreme with over-the-top physical and verbal abuse. Hidden cameras were rolling to see if anybody would try to stop it or if, instead, people might even join in.

Most people simply ignored the spectacle, one or two joined it, and I can only remember a couple actually trying to stop the abuse. The show, of course, is meant to make all of us think “Of course I would make them stop!” while showing that most people don’t.

To a social psychologist, the show’s probably not surprising one bit. If you put the onlookers alone in a room with the abuse going on, they might speak up, but in a crowd, suddenly all sense of individuality disappears. If the rest of the mob is doing nothing, best to not stand out. If the mob seems OK with an activity, it must be normal to be OK with the activity yourself.

What Would You Do? was a set-up, but there are several infamous examples of the same phenomenon.

You see a murder from your apartment window. What would you do?

In 1964, Kitty Genovese was stalked and stabbed to death in Queens, New York. The murder didn’t happen at once. She was attacked, left to stumble around, and finally killed about an hour later. Neighbors heard screams, might have seen the attacker, but did nothing. A famous New York Times article began with this chilling line: “For more than half an hour 38 respectable, law-abiding citizens in Queens watched a killer stalk and stab a woman in three separate attacks in Kew Gardens.”

Some parts of the story were later discredited, but it’s since been taught in social psychology classes as evidence of the “bystander effect”. A few years after the Genovese murder, John Darley and Bibb Latane attempted to replicate seeming indifference to emergency situations in the lab.

In the Darley/Latane experiment, an undergraduate would be put into a room, alone, with an intercom. He or she was supposed to talk about difficulties of student life with other members of the group (who were supposedly in other rooms, kept private to protect their anonymity). As they took turns talking, one of them would mention that he suffered from seizures. Later in the conversation, the test subject would hear this:

I-er-um-I think I-I need-er-if-if could-er-er-somebody er-er-er-er-er-er-er give me a little-er-give me a little help here because-er-I-er-I’m-er-er-h-h-having a-a-a real problem- er-right now and I-er-if somebody could help me out it would-it would-er-er s-s-sure be-sure be good . . . because-er-there-er-er-a cause I-er-I-uh-I’ve got a-a one of the-er-sei–er-er-things coming on and-and-and I could really-er-use some help so if somebody would-er-give me a little h-help-uh-er-er-er-er-er c-could somebody-er-er-help-er-uh-uh-uh (choking sounds). . . . I’m gonna die-er-er-I’m . . . gonna die-er-help-er-er-seizure- er-[chokes, then quiet].

Seriously. It was in the script.

So guess how long it took the students to, you know, leave the room and tell somebody that someone else on the conference was having a seizure?

First problem: If there were 6 people on the call (subject, victim, and four others), only 31% ever reported it.

Second problem: Even if they did, it took the subject a full 2 minutes and 46 seconds on average after hearing that to go seek help.

If there were fewer people on the conference, the rates and speed of reporting went up. Being in a group of non-doers is was kept people from intervening.

You see someone about to jump off a building. What would you do?

September 2008. A 17-year old, suffering from a bad breakup, threatens to jump from a parking garage. Police negotiators spend three hours trying to talk him down. The crowd acts a bit differently. Here’s a quote from a security guard who was there: “The police did a fantastic job at the incident and were not helped by a baying crowd, some with children, calling for the lad to jump.”

The teenager jumped.

Or how about August 2001. A 26-year old jumped from the Seattle Bridge, after some members of a crowd taunted “Jump bitch jump!” Or February last year, the mob taunted a jumper in San Francisco.

It’d be easy to pass off the cases as meanness or a lack of awareness of how serious the situations were. Part of it, however, is just herd mentality. If someone individually ran across a jumper, he’d probably call the police. Put in a group, that sense of responsibility dissipates. And once one person starts yelling out at the jumper, the rest feel more inclined to do it themselves.

I have the same visceral, disgusted reaction that you probably do. But sometimes I wonder if but for the grace of God, I could have been in that crowd.

(For a great post on the subject, check out You Are Not So Smart.)

And you think you stand a chance in personal finance?

John has a hot stock tip. Everyone at the barbecue nods in agreement.

Mary guilts you into coming to a charity auction. The bidding gets pretty heated.

You hear about money pouring into stocks or gold or whatever. And you wonder if you should come along too.

Or conversely, you feel like too much of your money is at risk in the stock market, but no one else seems to be concerned.

So tell me, what would you do? And are you so sure now that you see even in extremely terrible situations, so many people checked reason at the door and surrendered to the herd?

All the self-motivating, I-can-learn-my-way-out-of-anything things you think are going to bring you to financial fulfillment don’t hold a candle to the deep, deep psychological underpinnings that separate us from the machines.

You’re not going to reason your ways out of these problems. You need to learn why “reason” has nothing to do with them.


{ 18 comments… read them below or add one }

pen April 17, 2011 at 1:22 pm

interesting post. i think I’m fairly good at double checking anything that has to do with large amounts of cash myself… it’s the smaller amounts that i will succumb to peer pressure. it’s just $2 for a snack after all.

Edwin @ Cash The Checks April 24, 2011 at 3:47 am

Same reason why there’s gang bullying, yet each of the bullies may never do it if they were alone. Peer pressure is everywhere.

Jennifer Barry April 24, 2011 at 4:25 pm

I was familiar with most of these examples from Psychology classes. It’s true that we tend to follow the herd in groups. That’s why you should be suspicious of any financial strategy that “everyone” seems to be following.

It’s interesting that you mentioned gold. I started buying precious metals back in 2002 and most people thought I was insane. Still, most people in the US/Canada have less than 1% invested in this sector. It’s been called a bubble every year since 2006 and still it gains every year.

Rob Bennett April 24, 2011 at 6:46 pm

I agree about the problem.

I wish that more people would work on coming up with solutions to it.

Too many take the view that nothing can be done.

There’s lots that can be done, in my view. The more aware we are of the dangers that follow from listening to the crowd, the better able we are to fight that part of us that wants to go along. People need tools to help them with the emotional side of money questions. I see this as the future of personal finance.

Happy Easter, Pop (and those listening in).


B May 26, 2011 at 6:48 pm

No new content since early April. I guess Pop Economics has gone bust.

Chris June 16, 2011 at 10:51 am

Come back, Pop!

J August 17, 2011 at 7:05 pm

Where are you? Really miss your posts.

Ben August 25, 2011 at 9:25 am

The murder in NY was already written off in SuperFreakonomics. The original total of 38 onlookers was reduced to around 3, 2 of which reported a domestic dispute to the police.

Otherwise, kind of fluffy.

Rob Bennett September 6, 2011 at 2:45 pm

I also miss the blog.

We all understand if you are caught up in different things, Pop. We are just letting you know that we enjoy your stuff and wish you the best.


Tim Giangiobbe January 5, 2012 at 3:43 pm

I ask is society willing to witness the heartless implied social genocide that happens daily when homeless baby boomers suffering from dementia at a ripe age of 58 and just under the age of eligibility succumb to the elements in San Francisco streets. The OUTREACH in dismal and boomers must jump through hoops that mentally disturbed citizens are just not going to jump through.
The City will lie and say they have OUTREACH
The DOLTS in OUTREACH has a JOB to HERD the HOMELESS TOWARDS ILL EQUIPPED Drug,Thug and Bug filled shelters.
And pretend IT’S GREAT.
Just like the Nazi’s had enthusiasm for the gas chambers.
Imagine working over 100 quarters and succumbing to dementia EARLY.
Then when you seek services you find that the Safety Net has been OCCUPIED by addicts while you were busy working for over 100 quarters and they now have TENURE and upgraded accommodations for sucking the TEATS of the system for twenty to thirty years while you were bust busting your ass working and paying taxes only to find Photo Op whore Mayors like Gavin Newsom were busy using Homeless Baby boomers as props and doling out SROs to crackheads.The Care for Crackheads program was a real winner when YOUNG ABLE CITIZENS were given Single Room Occupancy Rooms while the BOOMERS were offered space in a human warehouse aka the shelter. Gavin closed the walk ins for the elderly.
“LIMITED” Services are offered in containment zones that boomers avoid.
Church Groups try and are overwhelmed and have little resources too.
Every Time Gavin had a Photo Op and Lied
A Homeless Boomer Died

Tim Giangiobbe January 5, 2012 at 3:59 pm

Now San Francisco has Ed Lee and Ed has on BLINDERS TOO.
Hey I will give the Non Profits credit for housing plenty of non natives and cronyism is alive and well in the housing world in San Francisco.
I question how younger citizens who have payed little or nothing into the system can enter San Francisco and find themselves in a favorable position on a LIST that is really not as public as it is supposed to be by law.
Now in DEFENSE of their reasons I will be the first to say that Chinatown Community Development Center has cheap rents in safe SROs in Chinatown and approaching streets.They protect the list so their SROs never suffer the same proliferation on drug dealing behavior and users that the Tenderloin SROs have.Just would like to say All or Nothing Thinking is an issue here.
The MODEL that CCDC has is much better than the MODEL that THC has and THC handles a LIONS SHARE of the cities Master Lease SROs.This is at 1200 bucks a pop.Per Month plus damages beyond the agreement.
Slumlords are getting rich because NIMBYS WILL STOP THE NEW HOUSING EVERY TIME .

Tom@easyfinance May 17, 2012 at 4:08 am

Amazing post to say the least. Must say your blog is going to be a huge source of knowledge for the newcomers. Well structured blog must say. Looking forward to more interesting posts like this in future.

John May 31, 2012 at 5:29 pm

Interesting stuff here! I understand what you mean when you say that individuals lose their sense of individuality when they are in a large group. I’ve felt that before, and know exactly what you mean. But don’t worry, I wasn’t in a mob. :)

Jack Hudson June 26, 2012 at 2:37 am

I am Jack from debtcc(dot)com and I am willing to write guest post for your blog http://www.popeconomics.com/. May I know how many word count are allowed?
If you have any more financial blogs, then please send the list.

Waiting for your reply.

Your positive reply will be highly appreciated.


Tony @ A Young Investor July 24, 2012 at 12:39 pm

The mob is usually irrational – they swing from one extreme to the other extreme. BTW, I love the logo. What happens if Bernake gets the boot in January 2014? Are you going to change it?

TR May 23, 2013 at 2:51 pm

Pop please start writing again, your blog was one of the best personal finance/economic blogs I read.

Jeremiah September 1, 2013 at 9:27 pm

Love the post. There are so many people offering advice and making predictions out there, and often people jump on the bandwagon to listen because they notice other people doing the same. After all, if this dude is on TV he must know what he is talking about, right? It doesn’t work like that though. That is why it is so important, especially in personal finance, to come to one’s own understanding.

whoiscall September 23, 2023 at 8:39 pm

Thank you!

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