Sunday 4 December 2016

Maeve Dineen: Herd mentality? Let's name the beasts involved

Maeve Dineen

Published 18/04/2011 | 05:00

A recent study of Harvard Business School students showed a third of them define right and wrong as what others in their class do.

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If you steal, then I steal. If you lie, then I lie. And on it goes, until the rock is lifted, the sun shines in and the insects scurry chastened into the darkness.

If this financial crisis has taught us anything it's that bankers and investors, by and large, move in herds.

Behavioural studies show that when information is scarce and threats seem imminent, people often stop listening to their own logic and look to see what others are doing. Herd mentality rules during a financial crisis because people are wired to follow the crowd. The impact of the herd mentality on the world's financial markets has been well documented over the course of this financial crisis.

And that is why I will be furious if the Nyberg report into the Irish banking crisis, which is due to go to Cabinet tomorrow, concludes that the herd mentality was the root of all the problems in our banking crisis.

Weekend comments by Finance Minister Michael Noonan suggest this will be the upshot of the report. "Dissent was discouraged and a dangerous consensus developed," was how Mr Noonan described the conclusions of the report.

If this is all that Nyberg and his team have come up with after a year of interviewing the who's who of Irish banking and economics, then I want my money back.

The dogs on the street knew this was going on. Every investor knows that serious money is made in markets by spotting when the herd is gathering to make a decisive move. But when it goes wrong, as it did in this financial crisis, it has dire consequences.

Those who have been interviewed for the purpose of the report tell me not to hold my breath, with many of them informing me that Nyberg and his team were only interested in "the systems" and not "the people" involved in crisis.

"When I tried to describe the Irish people's fascination with property, or explain who was involved in different areas of the bank, I was told it wasn't the reason I was being interviewed. They just wanted to know why people didn't shout stop," was one person's description of the interview.

Another person said Mr Nyberg's team spent months in one of the country's banks going through data, records and the minutes of meetings. He was then interviewed and the interview focused specifically on just one meeting he had with another member of the bank. "They just wanted to know why every bank was chasing Anglo. But they didn't want any specific names mentioned," he said.

Telling us it was the herd that caused the problem without naming the beasts involved is a cop out.

We know the names anyway. We just want to see them written down in black and white.

There is nothing new in the idea that markets suffer from herd instincts, and that the sum of individual benefit can lead to collective harm. That is why we have rule systems and laws.

In most cases, many of these people were obeying the rules. It is just that they wrote the rules to suit their behaviour rather than to inhibit it.

That is why we haven't seen anyone prosecuted. Now that's herd behaviour and sloppy behaviour at that.

Irish Independent

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