As pointed out more than a century ago by the American psychologist William James, an important factor behind human behaviour is attention; as also demonstrated by later psychological studies, we tend to direct our attention at whatever is attracting the attention of others. A major role in this process is frequently played by the media. It should be born in mind, however, that media operate in a highly competitive environment that makes it difficult for them to stand apart from the conventional wisdom. But media can both accentuate and modify the prevailing consensus. A phenomenon – also studied in experimental psychology – that works against taking an independent stance is group thinking. It is not easy to stick to an opinion that differs from what a majority of the group seems to hold; “surely all the others cannot be wrong” is a common thought. People who go 11 their own way are liable to be regarded as have-beens with little influence or significance. We are also liable to succumb to wishful thinking. Supporters of a football club or a political party, for instance, 12 are not infrequently over-confident about the chances of winning. Another example with which you may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer one that has many guests – they simply rely on the judgement of others. In this way our inherent behaviour can generate both optimistic and pessimistic over-reactions. Herd behaviour pulls share prices far beyond what is fundamentally warranted.
A relatively weak stock-market trend in the 1960s and ’70s no doubt fed expectations of a favourable return in the future. Another factor was certainly that the real return on bank deposits had been negative at times in the 1970s. Moreover, the introduction of mutual funds with tax incentives in the late 1970s and their subsequent replacement by a national savings system presumably drew many people’s attention to the stock market. It is also conceivable that the rise of economic journalism in the 1970s and ’80s contributed to a greater interest in the stock market. Neither should the formation of the Shareholders Association and the Share Promotion Association in the 1960s and 1970s, respectively, be overlooked. More knowledge and information certainly contributed. However, the increased saving in shares is one item in a larger context, in Sweden as well as other western industrialised countries. I mentioned earlier that Swedish households have transferred much of their traditional saving from banks to other instruments. Thirty years ago, bank deposits and other very liquid assets with little risk made up almost 60 per cent of households’ financial wealth, as against less than 20 per cent today. The major part of this adjustment in financial portfolios has gone to shares but a good deal now takes the form of insurance saving. The trend towards forms of saving with a higher risk has been accentuated by new rules for insurance companies, permitting a high proportion of shares, although this is arranged more indirectly.