Megan Fraser – BD & Marketing
Reuben Beelders – Chief Investment Officer
I recently saw a tweet that said “Birkenstocks…I just don’t get ‘em!”.
Later that day I was reflecting on that comment, and I smiled. I smiled because I was walking to a yoga class …wearing my Birkenstocks. I also smiled because it wasn’t that long ago that I too raised an eyebrow and shook my head in bemusement at the ‘Birkenstock-wearing-Luddites’. So not cool, dude! Two signs of a tourist in Cape Town: Birkenstocks (with socks) and waiting for the green man at the traffic light before crossing the road.
So, what happened to my firmly established bias? With the benefit of hindsight I realise that somewhere along the way my practical brain over-rode the bias with investigation into why it may be worth considering the Birkenstock option. It wasn’t a conscious process at the time but I now recognise the opportunity to observe the shift of my baseless bias.
This line of thinking was the result of discussions inspired by the book, Influence – The Psychology of Persuasion by Robert B. Cialdini, which covers the subject of Social Proof. Sometimes unpacking bias is easier if you are able to categorise and label recognizable behaviours.
Social proof is the psychological trend where people tend to rely on the actions and opinions of others to determine the correct behavior or decision in a given situation. The concept is rooted in the idea that humans are social creatures and therefore more likely to follow the crowd, particularly when uncertain or unfamiliar with a particular situation. Social proof can take various forms: Expert Social Proof, Celebrity Social Proof, User Social Proof, Crowd Social Proof, Friends and Family Social Proof.
Social proof works because of a number of psychological principles: when uncertain, people will rely on the actions of others to determine the correct course of action; conformity is a natural tendency in order to avoid social rejection; people seek validation from others to ensure their choices align with social norms and expectations; following the crowd saves cognitive effort as individuals don’t need to thoroughly analyze a situation when they can simply mimic others.
While we may pride ourselves on being independent, critical thinkers, are we really?
How familiar are you with your biases?
We’re all biased, preferring chicken over beef, or tofu over either, yet often people become defensive when confronted with their biases which is itself telling because bias is a neutral concept and neither inherently good nor bad. It simply refers to the inclination or predisposition to favour or hold certain beliefs, attitudes, or perspectives over others – it arises from a variety of factors, including personal experiences, cultural background, education, and societal influences – and is a natural aspect of human cognition. Our brains have limited processing capacity, so we rely on mental shortcuts and preconceived notions to navigate the complexity of the world around us. These shortcuts, or biases, help us make quick decisions and judgments based on incomplete information. It only becomes problematic when it leads to unfair or discriminatory treatment, exclusion, or the perpetuation of stereotypes.
But it is very useful when observing and evaluating our own behaviours. Two stories from the book:
- Sylvan Goldman was the owner of several small grocery stores in 1934. He noticed that people stopped shopping when their baskets became too heavy. This inspired him to design and build a new-fangled gadget called a shopping cart which he placed at a prominent place in the store, with signs describing its uses and benefits. None of his customers used it. He decided to try an idea based on social proof – he hired shoppers to wheel the carts through the store and voila! customers began following suit and his invention swept the nation. He died a very wealthy man.
- In 1761, London experienced two moderately sized earthquakes exactly a month apart. Convinced by this coincidence that a third, much larger quake would occur on the same date a month later, a soldier named Bell began spreading his prediction that the city would be destroyed on the 5th At first, very few paid him any heed. But there were some who took the precaution of moving their families and possessions to surrounding areas. The sight of this small exodus stirred others to follow, which led to near panic and a large-scale evacuation. Great numbers of Londoners streamed into nearby villages, paying outrageous prices for any accommodation. Included in the terrified throngs were many who had laughed at the prediction a week before, but who packed up their goods when they saw others doing so and hastened away.
After the designated day came and went without a tremor, the locals returned to the city furious at Mr Bell for leading them astray. But their anger was misdirected; it wasn’t the crackpot Bell who was most convincing. It was the Londoners themselves who validated his theory to each other.
There are many modern-day examples of the impact of social proof including but not limited to cabbage patch dolls, pet rocks, Pokémon Tamagotchi, Prime energy drinks, toilet paper shortages in early COVID days, and one of my personal favourites, investors electing to invest in FTX on the opinion of Kim Kardashian (sometimes stupid must hurt). Social proof is not always outrageous and/or dramatic; many of us check online reviews before buying a product or service, follow social media trends or content that goes viral, or support certain clothing styles or accessories because of celebrity endorsements.
Once we’ve made peace with the likelihood of having biases, it can be quite fascinating to watch how they colour our choices. How comfortable are you with passive strategies/indexation? After the recent Nedbank conference in London, a survey revealed that 52% of respondents said that in three years’ time 25% to 50% of their assets under management would be in passive strategies. In three years’ time…? Why not now? Why not already? Who needs to make the move for everyone to follow?
Legendary investor Morgan Housel says, “Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behaviour is hard to teach, even to brilliant people.”