Click, Whirr – Betting the Shortcut July 15, 2008Posted by DustinRJay in Calgary real estate, market behaviour.
Tags: Alberta REIN, bank run, crowd psychology
The failure in the US housing market was not a black swan as some have described it, but an error in understanding and managing collective risks.
Some of the psychological phenomena that may have contributed to the housing boom and bust are explored in a book called “Influence – The Psychology of Persuasion.” Some of these are:
1. Social Proof – Truths are Us
- Banks rely on other banks to determine risk management practices and safe lending procedures
- Real estate investment organizations like Alberta REIN have a bandwagon effect or crowd psychology (see photos here)
2. Authority – Directed Deference
- Appeal to authority of a “REALTOR®” (don’t forget the caps lock!)
3. Scarcity – The Rule of the Few
- Appeal to buy due to lack of supply (low housing inventory in Calgary 2006 to mid 2007)
4. Commitment and Consistency – Hobgoblins of the Mind
- The real estate market has only gone upwards for the past 10 years and therefore is perceived as having no risk
And on that note, I’ll leave you with a YouTube video of last weeks bank run on Indymac as a demonstration of crowd psychology. Enjoy!