Glossary · Economic ideas
Herd behavior
Herd behavior is when people copy what the crowd is doing instead of deciding for themselves, which can push prices, fads and panics far beyond what the facts justify.
Also called: herd mentality, herding, crowd behavior, FOMO, bandwagon effect, herd behaviour
US listings of blank-check companies. In 2019: 56; in 2023: 31.
In plain words
Two restaurants side by side, same menu. One has a line out the door, the other is empty. Most people join the line: so many people can’t be wrong, right? But maybe the first few diners picked at random, and everyone after just followed them. That is herd behavior.
Copying others is often sensible: the crowd may know something you don’t. The trouble starts when everyone copies and nobody checks. Then a small push can send the whole herd running in one direction.
In money, herds show up as fads and bubbles on the way up (buying because everyone else is) and as panics and bank runs on the way down (selling because everyone else is).
Example
The SPAC rush
A SPAC, or special purpose acquisition company, is a shell company that lists on the stock market with no business of its own, raises money, and then looks for a private company to buy. For years they were a niche.
- In 2019, 56 SPACs listed in the US.
- Then they became the thing to do: celebrities, athletes and well-known investors launched their own. In 2021, 596 listed, 10.6 times as many as two years earlier.
- Many of the companies they bought soon traded far below the listing price, and investors pulled back. In 2023, 31 listed.
Nothing about how a SPAC works changed in those years. What changed was how many people were doing it.
One level deeper
Economists explain herding in a few ways. Information cascades: if you see many people choose A, it is reasonable to assume they know something, so you choose A too, and so does the next person, until nobody is using their own information. Career worries: a fund manager who loses money along with everyone else keeps the job; one who loses alone may not. And plain social pressure: being wrong with the crowd feels safer than being wrong alone.
Herding feeds bubbles and crashes, bank runs (if others are pulling their money out, you had better hurry) and fads in everything from toys to diets. It also explains why money tends to pour into funds after they have done well, often just as the good run ends.
Not all following is herding. The wisdom of crowds works when people judge independently and their errors cancel out; it fails when they copy each other, so their errors add up.
SPAC IPOs in the US, month by month
Each bar counts the SPACs that listed in one month. The record year, 2021, towers over the rest.
The numbers behind the chart
| Date | SPAC IPOs in the month |
|---|---|
| Jan 2015 | 1 |
| Dec 2015 | 0 |
| Dec 2016 | 0 |
| Dec 2017 | 3 |
| Dec 2018 | 3 |
| Dec 2019 | 3 |
| Dec 2020 | 48 |
| Dec 2021 | 52 |
| Dec 2022 | 2 |
| Dec 2023 | 3 |
| Dec 2024 | 6 |
| Dec 2025 | 22 |
| Oct 2026 | 6 |
Why it matters
Herds push prices far beyond what the facts justify, in both directions: that is how bubbles and crashes grow.
They make crises worse: once a run starts, each person’s reason to join gets stronger.
Seeing the herd for what it is helps explain why “everyone is buying it” is not, on its own, a reason.
A common mistake
Myth: If everyone is doing it, it must be a good idea.
In fact: A crowd is wise only when people decide independently. When they copy one another, a crowd can be confidently wrong, as in every bubble from tulips to SPACs.
Questions people ask
What is an example of herd behavior?
Bank runs, bubbles in stocks or crypto, panic buying of toilet paper in 2020, and crowds rushing into whatever investment has just done best.
What is FOMO in investing?
Fear of missing out: buying something because others seem to be getting rich from it. It is a common driver of herd behavior near the top of a bubble.
Why do people follow the herd?
Because others may know something, because being wrong together feels safer than being wrong alone, and because copying saves effort. Usually it is harmless; in markets it can be expensive.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US IPOs a month: operating companies and SPACs: U.S. Securities and Exchange Commission, EDGAR full-index and filing headers.
- SPAC counts come from SEC filings: a company’s first final prospectus with a price, for companies classed as blank checks (SIC code 6770). A year counts only when all its months are in.
- This page explains a term. It is not investment advice.