Now we know why most investors act like lemmings. But will we change the way we act next time the crowd rushes to buy or sell? From the Wall Street Journal:
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From February through May, the Dow Jones Industrial Average gained more than 1000 points in an almost uninterrupted daily march upward. Then came the “flash crash” of May 6 and day after day of losses through May. Now, in mid-June, the market has been up six of the past seven days.
What accounts for these sudden moves? Why do investors so often seem to resemble a school of fish, all changing direction together?
Sometimes the most interesting answers to financial questions come from scientific labs. A study published last week in the journal Current Biology found that the value you place on something is likely to go up when other people tell you it is worth more than you thought, and down when others say it is worth less.