EFFECT OF HERD BEHAVIOUR ON BUSINESS DECISION MAKING: A CONCEPTUAL STUDY
Naada Ayuba Yadima , Abubakar Bala, PhD and Auwal Muhammad Isah
Volume 5 Issue 3
Abstract
The contemporary business environment is increasingly characterized by radical uncertainty and hyper connectivity, rendering traditional rational choice models insufficient for explaining organizational trajectories. This study investigates the conceptual influence of herd behavior on business decision-making, addressing the theoretical void created by market volatility and digital informational cascades. The main objective is to delineate how social convergence and collective irrationality drive organizational choices, specifically examining the effects of overconfidence, decision accuracy, the Fear of Missing Out (FOMO), and investor mood. Utilizing a qualitative conceptual methodology grounded in a systematic synthesis of behavioral finance literature (2020–2026), the paper integrates the foundational tenets of Keynesian uncertainty, Informational Cascade Theory, and Kirmans recruitment theory to construct an integrated behavioral framework. The findings reveal that herding significantly undermines rational agency, manifesting as overconfident risk-taking, emotional contagion, and a systemic reliance on perceived social signals over private data, which results in a 12.5% decrease in net returns and a 65% increase in forecasting errors. It is recommends that business leaders institutionalize Devils Advocacy protocols and data-driven auditing to mitigate FOMO and emotional biases. Suggestions for future research encourage the empirical validation of these propositions through econometric modelling within the Nigerian Exchange Group (NGX). The primary limitations of the study include the lack of primary statistical testing and a dependency on secondary data, which may not fully capture the distinct cultural nuances of localized informal markets. Keywords: Herd Behaviour, Behavioural Finance, Decision-Making, Informational Cascades, Cognitive Bias.
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