Example of The Lollapalooza Effect
- This is probably my favourite example - the open auction system
- In this sort of environment, several biases converge, causing people to act foolishly
- One of the phenomena is known as "social proof" or "monkey see, monkey do" which leads people to imitate the actions of others in an effort to reflect "appropriate" behaviour
- As a result, during an auction, people often engage in bidding wars not because they're passionate about acquiring the item up, but because that's what the people around them are doing
- When things like lazy assumptions, confirmation bias, and social proof combine, your brain can turn into mush as Charlie likes to put it
If you want to become a good investor, it's important to recognize when a Lollapalooza effect might come into play. One of these biases alone may not be enough to steer your mind but a combination of them will most likely do the trick.