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How Strong is OUR URGE to Conform? February 16, 2010

Posted by shaferfinancial in Finance.
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The classic psychological study of group conformity was performed in 1951.  Volunteers were asked to answer a question with an obvious correct option.  But, they did this after 5 research confederates answered it incorrectly.  Only 25% of subjects gave the obviously correct answer.  50% failed to give the correct answer the majority of time.  The siren pull of conformity perhaps best describes our social nature.   But what happens when this is applied to things that matter, like our retirement strategies?

I believe that is what has happened for folks.  People look around and see everyone else investing in mutual funds inside of 401Ks [add in the pressure to do so by the government and Wall Street interests], and the results are folks who fail to respond correctly to what they see clearly in front of them; the failure of the strategy!  Group conformity at work before our very eyes!

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