Herd mentality

A 'herd mentality' takes over when everyone follows the crowd

Today's story: Bank failures
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Herd mentality

Today’s expression is “herd mentality.” The herd mentality is a term we use to describe the behavior of crowds. A herd is a group of animals that all move together. So if you go out into the wild—as I occasionally do —you might see animals like buffalo, zebras, deer, whatever. And big groups of them move together. They graze, they hunt, they protect each other. But most importantly they travel together. The herd moves in the same direction. No one member of the herd wanders off into a different direction.

Humans can be like that too, but not for grazing or hunting. We like to be part of the crowd. We feel safety when others are doing the same things that we do. And so humans display the herd mentality when they do the same thing—or they move in the same direction—as a lot of other people.

When people follow the crowd, especially for something new, they display the herd mentality. This can be good or bad, but we most often use this term when individual people do things that they wouldn’t necessarily do by themselves, but they do it because so many others are doing it.

Here are a few examples of people displaying the herd mentality. GameStop. Do you remember that? This is a mediocre retailer of physical video games in the United States, but for whatever reason it became popular on Reddit. The reason was not the strength of the business! It became popular because it was popular with other people. It still is! The stock is not as high as when it was in the news, but it’s still 20 times higher than before the GameStop mania. Look at a chart of GameStop’s stock and you’ll see the herd mentality at work.

Panic buying is another great example of the herd mentality. What were stores like when the pandemic started? In Chicago, people were panic buying. You could not find toilet paper at Target. This was irrational. The paper companies were making just as much as they always were making. Trucks were delivering to stores. People’s demand was no higher during the pandemic than at other times. But people acted as a herd. One person irrationally stocked up. Then someone else did. Then everyone saw others buying basics and they cleared the shelves. This was the herd mentality.

Rioting and looting is another example. When there are large protests, people sometimes burn cars, smash windows, loot stores, whatever. And afterward, they arrest people and interview them. And we find out that many of the people arrested would not have burned a police car on their own, on any other day of the week. But they did it as part of a crowd that was acting similarly. They followed the herd. The herd mentality took over.

And so that’s what happened at Silicon Valley Bank . The bank had all the assets it needed to back up the deposits. Like most banks, it couldn’t access that money immediately. Like most banks, it didn’t have to…until there was a run. All of a sudden, people started moving their money out of the bank in a herd. I’m not saying there was nothing wrong—the bank should have hedged its interest rate exposure.

But the real story is how quickly so many of its customers did the same thing. All of a sudden, people who never thought about the safety of their bank were worried about Silicon Valley Bank based on a footnote in their financial statements. And, in a day, two days max, they withdrew enough money to topple the bank. It was the herd mentality at work.

Quote of the Week

Here’s a quote tailor-made for the age of ChatGPT. It’s by Jules Verne, a French science fiction author. He said, “In consequence of inventing machines, men will be devoured by them.”

Devoured means eaten. I don’t know. That seems like the fear of science-fiction writers, but it never quite becomes true. But we are in a new age of artificial intelligence. “In consequence of inventing machines, men will be devoured by them,” according to Jules Verne.

See you next time!

And that’s all for today’s Plain English. Remember, I need your help on Instagram. I need some encouragement from you all! We’ve refreshed the account and I want to connect with as many of you on there as possible. So check it out @plainenglishpod . Leave comments on the content you like, and I’ll make more of it. I check the messages every day, so I’d love to get to know you on there. Our name on Instagram is @plainenglishpod

Coming up on Thursday: A blob of seaweed is floating toward the beaches of Florida, Mexico, and the Caribbean. And the blob threatens summer tourism and local ecosystems. That’s on Thursday. See you then.

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Story: Bank failures