Researchers:
Andersson , Maria
Gärling, Tommy
Hedesström, Martin

Some questions that this project aims to answer are: To what extent will the type (size, reputation and past performance) and/or the number of institutional investors adopting a SI policy encourage other institutional investors to also adopt a SI policy?; Will non-SI institutional investors adopt a SI practice in their portfolio management when SI institutional investors do?; and Under what conditions and in what ways may SI and non-SI institutional investors collaborate?

The “herd mechanism” is scrutinized by means of analyses of published research in financial economics, social psychology, and the psychology of judgement and decision making as well as a series of experiments that we have conducted. The results demonstrated effects of monetary incentives on herding.

Drawing on social-psychological research we have proposed a theory in which majority and minority influences are mediated in different ways. The former is mediated by heuristic processing (adopting the consensus-equals-correctness heuristic, “the majority cannot be wrong”), whereas the latter is mediated by systematic processing (“Is the minority really correct?”). Systematic processing is assumed to increase if rewarded (as in our first experiments). In a task consisting of predicting stock price movements, we assume in line with this that discernable price trends increase minority influences.

In two experiments we have found that the degree of consistency among a majority increases influences of a majority but not of a minority when the stock prices are random. These results are very clear-cut and have been accepted for paper presentation at the conference of the European Association of Decision Making to be held in Warshaw next August. A follow-up experiment is now under way. In this experiment we aim to test whether the minority will have an impact when the stock prices are not random but exhibit increasing or decreasing trends. The three experiments with approximately 200 participants (undergraduates) will be reported as a paper during May-June. A report of the results of the third experiment will in June be submitted for presentation at the conference of the Judgment and Decision Making Society to be held in the US in November.

Project D has also contributed to the survey questionnaire in project C. Several of the questions address the issue of what influences the respondents believe would make them follow others to adopt SI policy and practice. Maria Andersson and Tommy Gärling are coauthors of an abstract submitted for paper presentation reporting these results at the international conference of the International Association of Research in Economic Psychology in Ljubljana next September.