Many investment decisions are made in a group setting (e.g., stock recommendations by research committees, analysts working in a team setting, pension plan decisions being approved by a board of trustees, or an investment club deciding which stocks to buy).
Social proof bias is when a person follows the beliefs of a group. Either consciously or subconsciously, individuals may seek the endorsement or favorable judgment of others within the group.
The remedy is for committees to have the following features:
- Individuals with diverse backgrounds and cultures.
- Members who are not afraid to express their opinions even if it differs from others.
- A committee chair who encourages members to speak out even if the member’s views are contrary to the group’s views.
- A mutual respect for all members of the group.
- Collecting individuals’ views before a discussion can ensure a wider range of opinions are considered, particularly if individuals feel inhibited from expressing their views in group discussions.