Why People Invest in Things They Don’t Fully Understand

More often than not, when a new investment trend appears, everyone gets to talking about it within a short time.

WhatsApp groups, X(formerly Twitter) and social media will be dominated by people speaking of the new money-making opportunities. Some will claim that they’ve doubled their money even as screenshots of profits start circulating. 

Before long, you begin to feel like you’re being left behind. So you invest, even if you don’t fully understand how it works.

This behaviour has a name in psychology, and that is the Bandwagon Effect.

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What Is the Bandwagon Effect?

The Bandwagon Effect is the tendency for people to adopt beliefs or actions simply because many others are doing the same.

Our brains are wired for social proof. For thousands of years, following the group meant safety. If the tribe ran in one direction, you ran too. If everyone avoided something, you avoided it too.

In ancient times, that instinct protected us. In modern-day finance, it can cost us money because crowds are not always informed. Sometimes they’re just excited.

The Bandwagon Effect has already been witnessed in Kenya in many investments such as cryptocurrency, land-buying rushes in “upcoming” areas, and forex, among others.

The investment itself may be legitimate. It may even work for a while. The real problem isn’t the opportunity. It is investing without understanding how the market operates, the returns, and the risks, among others

When excitement replaces analysis, the bandwagon effect is in full force.

Also Read: Why You Spend Money the Way You Do - It’s Deeper Than You Think

Why We Fall for It

There are three powerful psychological forces at play.

1. Fear of Missing Out (FOMO)

When people around you appear to be making money, your brain interprets it as both an opportunity and a threat.

That urgency creates emotional pressure. Instead of asking critical questions, you rush to secure a spot before it’s “too late.” In this case, speed replaces scrutiny.

2. Social Validation

If many people are investing, it feels safer. You assume that not everyone can be wrong. This is made worse in cases where you think that smart people in your circle are also investing in the opportunity.

3. Mental Shortcuts

Understanding an investment takes effort. It requires reading, researching, and sometimes admitting you don’t know enough.

Following others is easier. Sometimes, your brain prefers shortcuts. Copying the crowd saves time and mental energy. It feels efficient, even if it isn’t wise.

Also Read: How Supermarkets Trick Your Brain Into Spending More

The Cost of Following the Crowd

The bandwagon effect doesn’t always lead to disaster. Some trends grow sustainably.

But it increases your risk because:

• You may enter at peak prices when excitement is highest
• You may panic and exit when the crowd exits
• You may ignore warning signs because “everyone else is calm”
• You may invest money you cannot afford to lose

How to Protect Yourself

Before investing in anything popular, pause and ask:

• Can I clearly explain how this makes money — in simple terms?
• What specific risks could cause me to lose money?
• Am I investing because I understand it — or because others are?
• Would I still invest if nobody was talking about it?

If you cannot answer these confidently, slow down. Opportunities that are truly valuable rarely disappear overnight.