Episode 14 - How GroupThink and Conformity Influence our Decisions - Bryan Foltice Behavioral Finance

Bryan Foltice Behavioral Finance Podcast

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In this episode, we'll explore how the concepts of groupthink and conformity influence our decisions, shedding light on how these psychological tendencies influence our decisions, behavior, and society as a whole.
Behavioral finance helps us understand how financial decisions around things like investments, payments, risk, and personal debt, are greatly influenced by human emotion, biases, and cognitive limitations of the mind in processing and responding to information.
Groupthink defined: A psychological phenomenon where individuals within a group prioritize harmony and consensus over critical thinking, often leading to flawed decisions.
Key factors contributing to groupthink:
High group cohesion: Strong unity can discourage dissenting opinions.
Directive leadership: Authoritarian leaders can suppress diverse viewpoints.
Insulation: Lack of external input prevents a balanced perspective.
Stressful situations: Pressure for quick decisions can deter critical analysis.
Conformity defined: Adjusting one's behavior or beliefs to match those of a larger group.
Asch Conformity Experiment: Solomon Asch's research showed how individuals would give incorrect answers to match the group's consensus, even when they knew it was wrong.
Factors influencing conformity:
Group size: Larger groups tend to increase conformity.
Social identity: People conform more within groups they strongly identify with.
Normative influence: Conforming to gain social approval or avoid rejection.
Clicking the timestamps below for a quick view of every action.
00:00 Introduction
01:08 Asch's Line Activity (Introduction to Conformity)
07:19 Pitfall of Conformity: GroupThink
08:08 Conformity/GroupThink Case Study - Enron
09:11 Size Matters: Group Size Determines Conformity for Board of Directors (more than 12 = Free-Riders)
10:30 Interconnectedness of Board of Directors
13:22 Obedience to Authority
14:55 Milgram's Obedience to Authority Video Explanation
19:30 Herding
22:40 The Wisdom of Crowds
24:51 The Difference Between the Wisdom of Crowds Vs. Biases
Interconnectedness of Board of Directors
https://www.fastcompany.com/90209537/the-web-of-board-members-that-link-american-corporations-mapped
McDonalds Board of Directors (September 2023)
https://corporate.mcdonalds.com/corpmcd/investors/corporate-governance/board-of-directors.html
Milgram's Experiment Video: https://www.youtube.com/watch?v=cBDkJ-Nc3Ig
I hope you enjoy the content and learn all about the topic of Behavioral Finance. I've set up the first few podcasts as mini-lectures of my Behavioral Finance course that I teach at Butler University each semester. The goal of this podcast is to provide a comprehensive look into the topic of Behavioral Finance - for free!
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