The Lemming Effect Could Mean Losses of Money, Self Identity and Slower Personal Development

We don’t even realize how often our decisions are based on other people’s moves. Lemming effect depicts a negative side of (un)conscious following of the crowd – when following leads to falling off the cliff. In real life situations it could mean losses of money, self identity and slower personal development. Lemming effect also takes place when social pressure influences your alcohol consumption (my article that inspired this writing). Lets discuss in more details this effect.

Lemmings are little rodents (animal class that includes rats, mice, squirrels, hamsters) that live in the cold northern (near Arctic) regions, but do not sleep through the harsh northern winter. They remain active, finding food by digging through the snow and storing in advance. They are singular animals by nature, meeting only to mate and then going their separate ways, but like all rodents, they have a high reproductive rate and can breed rapidly when food is plentiful. When population density becomes too high, some of the lemming species migrate in large quantities and since they can swim, they choose to cross the water in search of a new habitat. Here comes the hyperbolic misconception (myth) of mass suicide phenomena, called the Lemming Effect.

The Lemming Effect is a behaviour when people unquestionably follow popular opinion or behaviour and that potentially results with negative consequences. As it might sound easy to grasp the concept, it is difficult to notice in your actual behaviour. Moreover, social togetherness is sometimes very pleasant and sweet, as in this short video, where one man starts to dance, then few people join and once the critical 5–6 people threshold is passed, massive amounts of people join the dance. Would you join? I am sure i could not resist. It is a pleasant example, while lemming effect brings awareness that mass behaviour does not always result in positive experience.

Lets take the stock market dot-com bubble explosion in 1999–2001 and a recent real estate fiasco (subprime mortgage crisis) in 2007–2009, which also caused stock market crash. Many investors were too emotional, irrational and instead of conducting the research themselves, followed the commonly accepted level of valuation. Believing that market is always efficient and it sets the prices correctly in short periods results in lazy approach of following what others do. To tell the truth, i was not an exception in the stock market crash in 2008. The only difference was that i invested after a very in-depth research, seemingly abstract from emotion, since positions were illiquid undervalues positions. My mistake however was to use high financial leverage (taking large debts and investing in stocks) strategy (desire to get rich quicker!), which meant that when the lemmings drops, even the undervalued positions become more undervalued and the leverage pushed me to sell them at unacceptable levels. Personal take away from this situation – you can not even stand on the same path and thing that you could be intact when lemmings move to either side, because you will be stepped over.

From personal development perspective, following masses could mean loosing your individuality, feeling uncomfortable and struggling being internally happy. For instance, if the most popular education program in universities is business studies and you choose business ignoring your true desires (just because you have the best grades and here you find the highest competition) or failing to do sufficient research of what studies would fit you the best or where there is a lack of experts, your choice could result quitting your studies or worst, finishing the studies and then working somewhere in different field.

In conclusion, (1) lemming effect is not that far from addictive and pleasant social togetherness, but with some potential negative effect that you need to be aware at all times. (2) It would be wise to participate in social movements, but not to loose your head in the emotions, be critical and abstract from the movements that are going against your vision. (3) Also do the research, experiment with unpopular ideas, before deciding that massive movement is for you. (4) It is important not to ignore the fashionable movements, because accidentally standing on the way of the movement could harm you. On the other angle, you could have a very good use of lemming effect, if played well (contrarian view).

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Written by: blog Developing Money Ideas at developingmoneyideas.com

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