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Herding bias refers to when investors follow the crowd instead of making independent decisions.
Effect:
• Buying into overvalued assets during market booms.
• Selling due to fear of missing out (FOMO) in plummeting markets.
Example
Investors began buying Bitcoin at its peak during the cryptocurrency binge in 2021, driven by general hysteria but got bulldozed later on.
How to Combat:
• Research for yourself and stay the course.
• Refuse to buy under the influence of popular perception or news.
5. Confirmation Bias
Confirmation bias entails seeking and highlighting information that is