Case Incident: HERD BEHAVIOR AND THE HOUSING BUBBLE (AND COLLAPS)

1. Some  research suggests heard behavior increases as the size of the group increases. Why do you think this might be the case? 

Ans. Yes herd behavior increases as the size  of the group increases. As the group of the size increases group will follow certain norms. In Theory of the Leisure class, Thorstein Veblen explained economic behavior in term of social influences such as “emulation”, where some member of a group mimic other members of higher status. If  one of the person find any benefits from any resources then every one in the group try to gain benefit from same resource. If any member added to group, he/she need acceptance by group.  Thus the member is susceptible to conforming to the group norms. Norm can cover usually any aspect of group behavior. The most common norm is performance norm which is providing explicit cues about how hard members should work, what level of tardiness is appropriate. These norm are aggressively powerful and are capable of important modifying a performance prediction based on solely ability and level of personal motivation. There are considerable evidence  that the group can place strong pressure on individual member to change there attitude and behavior to conform to the group standards.  Every individual try to compare with other group members and try to be equal with them. As a result, increase herd behavior as group increases.[Y1] 

2.  One researcher argues that “pack behavior” comes about because it has benefits. What is the upside of such behavior? 

Ans. In certain ways pack behavior have benefits. Pack behavior was seen most commonly in an exclusive circle of people with a common purpose. The pack will be led by a individual in a group who can restrict  the other individuals in the group. Leader will have more responsibilities within the pack and about the pack.  Leader will make every one comfortable in the pack. The leader of the pack initiates the play pattern, which direction the pack will travel; when to rest and when it is time to hunt. He/she direct pack activities and also take the initiatives in reacting to instructions. Much of pack behavior is directed toward the goal of either maintaining one social or possibility to raising it. Each and every member is constantly watchful and interested in all society important happenings within the pack. All the members will follow the pack leader and leader will use certain methods to keep the followers in line… [Y2] 

3.  Shiller argues that herd behavior can go both ways: It explains the housing bubble, but it also explains the bust. As they see others bidding down home prices to abnormally low levels.” Do you agree with Shiller? 

Ans. Yes I agree with Shiller. We can also observe herd behavior go both ways increasing in house price. Each individual reduces the danger to itself by moving as close as possible to the center of the fleeing group. Thus the herd appears as a unit in moving together, but its function emerges from the uncoordinated behavior of self-serving individual. The house bubbling is example of herd behavior that is irrational and driven by emotion which is greed in the bubbles, fear in the crashes. Shiller’s studies focus on individual join the crowd of others in a rush to get or out of the market.

Example (House bubbling)- The only hope who should be expected to be experienced a positive wealth effect from rising prices are those who expect to sell their houses soon to cash in. Renter who had hoped to buy should actually experience a negative wealth effect, as they realize they’ll need more money than ever to buy. And a common people should be neutral. Furthermore, they say ,it’s possible that even if consumption does rise when home price go up, it doesn’t have to be a cause-and-effect relationship. It mean, both consumption and housing are rising in response to an increase in expectation for future incomes.

[Y3] 

4. How might organizations combat the problems resulting from heard behavior?   

Ans. Herd behavior in organizations was mostly seen in groups. This problem causing group members in organization working without any goal. All members will work together but they are not set a direction. This behavior can cause  If anyone in group are lazy or inept, then seeing them others will also reestablish equality by reducing their effort. As if all individuals in whole group reduce their effort, productivity will reduce. This is because group results cannot be attributed to any single person, the relationship between an individual’s input and group output is clouded. There are several ways to prevent this.  Firstly, set group goals. So the group has a common purpose to strive towards. This way can make all group members in organization  2). increase intergroup competitions, which again focuses on the shared outcome; 3). engage in peer evaluation so each person evaluates each other person’s contribution; 4). select members who have high motivation and prefer to work in group, and 5). if possible, base group rewards in part on each member’s unique contributions.[Y4] 

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