The Hindu Business Line : Social conformity

ONE of my friends is part of a small informal investment club that meets once a fortnight. After the last meeting, he bought shares of Titan Industries.

He had earlier expressed his opinion that this stock was over valued!

So, why did he buy the stock? The answer lies in what psychologists call social conformity. What does it mean?

Suppose you attend a dinner party and are concerned about your etiquette.

What do you do? You may look around to see whether others are using a fork or a spoon to eat the first course.

Why? It may be that you want to be accepted by the group.

Of course, it could also be that you presume that others know more about etiquette than you do. If you see a group of people using a spoon, you may conclude that using the spoon is the right etiquette. So, you mimic their action. That is social conformity.

In the 1940s, psychologist Solomon Asch performed a simple experiment to see how individuals reacted when faced with a group where the majority was clearly giving wrong answers.

He found that nearly a third of the people tended to accept the majority despite the wrong answer.

The important part of this experiment was that the subjects were asked to verbally give their answer.

You may now see a similarity in my friend's behaviour. All members of his investment club have to verbally discuss a stock before buying it.

The investment will be done collectively. My friend perhaps thought that the group was more discerning than he was or he may have wanted to feel part of the group.

Whatever the reason, his investment in Titan proved to be disastrous!

(The author is Head, Research, Navia Markets)

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