How Does Herd Behaviour (explained in a minute) - Behavioural Finance Work?

Imagine you're on a playground, and everyone starts running in one direction, even if they don't know why. That's herd behaviour, when people follow others because they think the crowd knows something.

You’re at the front of the line for the slide, but suddenly everyone behind you starts jumping up and down. You look around, see everyone else doing it, so you jump too, even if you don’t know why. That’s like behavioural finance in action: people follow others’ choices because they think they’re making a smart decision.

Sometimes, kids follow the crowd because they want to fit in. Other times, it's because they see someone else getting a bigger treat, like the best cookie in the jar. In behavioural finance, people might invest in something just because everyone else is doing it, even if they don’t understand what it really means.

It’s not magic, it's just copying, like when you copy your friend’s homework because it looks easier. That's how herd behaviour works in the world of money too! Imagine you're on a playground, and everyone starts running in one direction, even if they don't know why. That's herd behaviour, when people follow others because they think the crowd knows something.