Rational herding

In economics and finance, rational herding is a situation in which market participants react to information about the behavior of other market agents or participants rather than the behavior of the market, and the fundamental transactions.

Rational herding in financial markets can take place because some investors believe others to be better informed than themselves, and follow them, disregarding their own information or market fundamentals. Reliance on rational herding can be a source of instability in financial markets.