4
$\begingroup$

Today I read a paper recently written by Bursztyn, 2021 saying that

The origin, persistence, and rigidity of misperceptions about others can in principle be explained by different conceptual frameworks, such as stereotyping (e.g., Bordalo et al. 2016), motivated reasoning (e.g., Benabou and Tirole 2016), and pluralistic ignorance (e.g., Kuran 1997; Bursztyn, Egorov and Fiorin 2020; Bursztyn, Gonz´alez and Yanagizawa-Drott 2020)

From what I understand, pluralistic ignorance is

the situation in which almost all members of a group privately reject group norms, yet believe that virtually all other group members accept them

However, I still not yet got the idea of this behaviour, could you give me an example in economic or finance to understand it more?

Update: Adding a great explaination of "pluralistic ignorance" as suggested by @Lason

The term “pluralistic ignorance” was coined to describe the situation in which almost all members of a group privately reject group norms, yet believe that virtually all other group members accept them (Katz and Allport, 1931). Under such situations, individuals predict that they would lose social standing if they behaved as they wished. Behaving against the group norm could result in negative reactions from other ingroup members. Therefore, people are likely to follow perceived group norms to maintain positive impressions in their groups, even when they do not support the norms (Miller and McFarland, 1987; Miller and Prentice, 1994; Prentice and Miller, 1996; Geiger and Swim, 2016). In line with this idea, in situations of pluralistic ignorance, some people even actively enforce the perceived norms (i.e., publicly criticizing a “misfit” into accepting the norm), although they privately disapprove of the norms (Willer et al., 2009). Consequently, public behaviors of groups as a whole do not coincide with the majority of group members' private preferences under circumstances of pluralistic ignorance. Thus, the situation of pluralistic ignorance is well represented in the following sentence: “No one believes, but everyone believes that everyone else believes” (Krech and Crutchfield, 1948).

$\endgroup$
5
$\begingroup$

Pluralistic ignorance is a theory explaining why social practices continue to be perpetuated when almost no individual seems to support them. When pluralistic ignorance is at play, agents act in the way they envision others want them to act, so as not to lose their social standing by acting as they wished.

Some examples in the indirect economic world include: Heavy drinking in college, Racial segregation perceptions, and many others (see references).

I have not found or studied any example in finance, but I would argue that the same logic applies and any experienced stockbroker or individual investor would experience the negative effects of pluralistic ignorance; for example each investor might not like a particular asset, but for reasons of their own, they might think that everyone else loves this asset, and thus is willing to buy it or hold on to it. The outcome of this process is for the price of an unlikeable asset to rise - conforming to the norm that each individual unwillingly propagated.

$\endgroup$
5
  • 1
    $\begingroup$ Hi there, could I call you Koutsoulis? Thanks a heap for your answer, I read all the cited papers but still ambiguous. Let's put in an example. If a government asks the citizen to get vaccinated. So, it means that the pluralistic exists here? "When pluralistic ignorance is at play, agents act in the way they envision others want them to act, so as not to lose their social standing by acting as they wished" ? $\endgroup$
    – Louise
    Aug 23 at 21:19
  • 1
    $\begingroup$ Hello, you can call me Iason. I doubt that mandated vaccinations fit into this theory so well. For one, there are people who genuinely wish to be vaccinated so as to mitigate the problems the virus comes with. Second, even if there are some who do not want to be vaccinated but end up getting the shot, they do it most likely due to the immediate economic and social advantages of running their business or meeting their friends. Part of vaccinated folk will have done it due to their succumbing to peer pressure, although even then, this peer pressure might come from knowledge and not ignorance. $\endgroup$ Aug 23 at 21:54
  • 1
    $\begingroup$ I would have thought the exact opposite was a better example. Being anti vaccine because your peer group is supporting that view , even though each member can see the evidence of its efficacy. $\endgroup$
    – dm63
    Aug 23 at 23:26
  • $\begingroup$ Thank dm63, it seems right to me, what do you think, @lason? $\endgroup$
    – Louise
    Aug 24 at 1:16
  • 1
    $\begingroup$ It holds water, but each member must privately wish for the vaccine to gain ground and still express an "anti-vax" public opinion. $\endgroup$ Aug 24 at 8:48

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.