Covet Thy Neighbors' Investments?

Mark Hulbert of the New York Times: "The impulse to keep up with Joneses plays an enormous role in the behavior of consumers, whether they’re shopping for clothing or toothpaste, buying a home or deciding which school ought to be entrusted with their children."

In the language of psychology, we call this the power of Social Proof, which tells us that people look to what similar others (read: peers) are doing for guidance in making our decisions.

Hulbert continues: "It turns out that the investing arena is no different. When making changes in their portfolios, people pay a great deal of attention to what their neighbors are doing.

That’s the conclusion of a new study, “Information Diffusion Effects In Individual Investors’ Common Stock Purchases: Covet Thy Neighbors’ Investment Choices,” which appears in the July issue of The Review of Financial Studies. Its authors are Zoran Ivkovich and Scott J. Weisbenner, assistant professors of finance at the University of Illinois."

Read the rest of Hulbert's article here.

CMCT Retreat

Last week, I attended an invitation-only event hosted by the esteemed Dr. Cialdini and the fine folks at Influence At Work in blessedly hot Arizona at the Wild Horse Pass Resort.

Not only was this an opportunity to glean Dr. Cialdini's latest research into the science of influence, but it was also incredible to meet and get to know some of the finest persuasion practitioners from around the world.

I will be posting more on this one-of-a-kind event soon, so please stay tuned for some very interesting news!

Friends Will Make You Fat!

The New England Journal of Medicine has just published a study that having close friends who are fat can nearly triple your risk of becoming obese. Read the LA Times article for more detail.

This validates one of the most powerful forces at work within social networks - the principle of social proof. What it tells us is that human beings are constantly seeking a form of approval for our decisions and actions, and that one of the ways in which we find that approval is by looking at what other people are doing in similar situations.