Case Incident: HERD BEHAVIOR AND THE HOUSING BUBBLE (AND COLLAPS)
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1. Some research suggests heard behavior increases as the size of the group increases. Why do you think this might be the case?
Ans. Yes herd behavior increases as the size of the group increases. As the group of the size increases group will follow certain norms. If one of the person find any benefits from any resources then every one in the group try to gain benefit from same resource. If any member added to group, he/she need acceptance by group. Thus the member is susceptible to conforming to the group norms. There are considerable evidence that the group can place strong pressure on individual member to change there attitude and behavior to conform to the group standards. Every individual try to compare with other group members and try to be equal with them. As a result, increase herd behavior as group increases.
2. One researcher argues that “pack behavior” comes about because it has benefits. What is the upside of such behavior?
Ans. In certain ways pack behavior have benefits. Pack behavior was seen most commonly in an exclusive circle of people with a common purpose. The pack will be leaded by a individual in a group who can restrict the other individuals in the group. Leader will have more responsibilities with in the pack and about the pack. Leader will make every one comfort in the pack. All the members will follow the pack leader and leader will use certain methods to keep the followers in line.
3. Shiller argues that herd behavior can go both ways: It explains the housing bubble, but it also explains the bust. As they see others bidding down home prices to abnormally low levels.” Do you agree with Shiller?
Ans. Yes I agree with Shiller. We can also observe herd behavior go both ways in share market. For example if there was any negative news regarding a company then people immediately begin sell off shares of the stock. In other way if any good news about a company was reported in the news then people start buying the company shares which will drive up the stock price.
4. How might organizations combat the problems resulting from heard behavior?
Ans. Herd behavior in organizations was mostly seen in groups. If any one in group are lazy or inept, then seeing them others will also reestablish equality by reducing there effort. As if all individuals in whole group reduce there effort, productivity will reduce. This is because group results cannot be attributed to any single person, the relationship between an individual’s input and group output is clouded. There are several ways to prevent this 1). set group goals, so the group has a common purpose to strive towards; 2). increase intergroup competitions, which again focuses on the shared outcome; 3). engage in peer evaluation so each person evaluates each other person’s contribution; 4). select members who have high motivation and prefer to work in group, and 5). if possible, base group rewards in part on each member’s unique contributions.