Behavioral finance FAQ / Glossary (Imitation / mimicry)

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i: incidental

Imitation / mimicry


02/4i, 03/10i + see trend
following, learning, cognitive,
herding, cascade, conformity,
peer pressure, + bfdef2

As long as my neighbor did it, why not me?
Why should I re-invent the wheel?
Well, maybe to find a rounder one.

Definition:

Role model, please climb on the stage!

Mimicry / imitation (*) is a widespread human tendency to reproduce
the
behavior of other people (be they gurus, group or crowd members, peers
or close relatives or neighbors) by conforming to:

Their beliefs,

Their attitudes,

Their actions.

Their look also ? Several economic sectors are based on that !

(*) If we want to be purist in those definitions, we might say that imitation

is done in some circumstances while mimicry is the habit to imitate
(a
person or group or a type of persons or groups) in many
situations
.

Since birth, social learning (see 'learning')     is done by imitating
the people around, in practice by observing them and replicating their
behavior.

This process combines two aspects:

Cognitive: learning by

* Observing and perceiving what other people (and among them those
  
seen as "role models") say and do.

* Then testing this perception by behaving accordingly.

This is is a practical shortcut, even if it does not suffice, to accumulate
knowledge and experience.

Affective, linked to the feelings of proximity and community that
   
is experienced towards other people (see affect heuristic).

    Oxytocine, the trust and love hormone, at work in the brain !

Any human being has a vital need for social ties and togetherness, but
it might be sometimes perverted.

Also, adopting other people beliefs, whatever their worth, might be felt as 
an antidote to the mental pain caused by uncertainty (see that word).

Last but not least, some people learn in the contrary by opposing
other people.

But such a "counter-dependence" can be a kind of dependence, not
to confuse with real autonomy.


What consequences?

Aping can help sometimes,
but it is not an all-road and all-weather
substitute for thinking
.

The imitation of others has at the same time advantages and drawbacks:

The advantages are

To simplify knowledge acquisition, as a fast track, nearly instant,
    education method.

In some circumstances to be a rational adaptation behavior ("do
    in Rome like the Romans do").

The drawbacks lie in the neglect to check the relevancy of such
            mimicry
.

For example the imitator might not wonder:

Whether past common knowledge really fits new situations,

Or if those other people act rationally ("as they do it, they must 
    have a reason")

Or if there is some agenda and manipulation in the "good example"
    they intend to give.

Thus mimicry is sometimes a maladapted instinct, a Pavlovian reflex
which serves no real purpose.
Or worse, imitating others can lead us to:

Neglect other information that contradicts
what we learnt.

This is a form of cognitive bias (see selective exposure).

Oversimplify the way we decide our actions.

When the world around us change, we might also neglect
to check whether the automatic modes we learnt (common
heuristic, habits, routines) are still  well grounded.

Thus we fail to update our way of doing.

From mimicry to herding

Trapped in the crowd or adapted to it?

Imitating the imitators


When an imitation is not limited towards one or a few people but when most
members of a group mimic one another, the phenomenon is
labeled herd instinct / herding (see those words), a classical behavioral finance
/ behavioral economics notion.

People tend to get an impression of safety by doing the same thing as other
people
.

Aristotle defined human beings as "social animals".

Luckily, it is only partially true, it would be frightening to have only
sheep or wolves around.

Well, he seemed not too good at subtle thinking. He saw the world
in a binary way with everything as either white or black or as
eithertrue or false.

Not the guy for "fuzzy logic" (see that word, also used in Behavioral
finance).

The stock market case

Jumping together into or out of the market.

In financial markets, imitation / mimicry (see that word)
is often at play.

=> Investors tend to follow price trends, not wondering if they are
      justified by economic prospects.



Instant coffee.

In stock markets it happens rather often that, at the same moment, all the
most active investors want to buy the same stock, or to get rid of it,

Of course an exchange happens when the same quantity is sold and
bought, but in
such a case only with a huge price change.

This killer wave extends to the whole market if a mass of people try to buy
or sell all assets at the same time.

This can create excesses, including bubbles and crashes
(see those words)

(*) To find those messages: reach that BF group and, once there,
      1) click "messages", 2)
enter your query in "search archives".

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This page last update: 23/08/15  

 
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