The Digital Stampede: A Comparative Analysis of Herd Behavior and Information Cascades in Mutual Fund Selection Across Gen Z and Baby Boomer Demographics

Abstract

Traditional finance operates under the Efficient Market Hypothesis, asserting that asset prices reflect all available information and that markets operate rationally. Yet the historical record reveals persistent market bubbles, crashes, and anomalies that directly contradict this framework. This study investigates how psychological biases, particularly herd behavior and information cascades influence mutual fund selection decisions across two distinct demographic cohorts: Generation Z and Baby Boomers. Using a mixed-methods approach incorporating behavioral finance theory with empirical market data, we examine how information sources, decision-making speed, and social proof mechanisms differ between these generations and how such differences affect portfolio composition and turnover rates. Our findings reveal fundamental divergences in the channels through which financial information travels, the speed at which decisions occur, and the intensity with which herding occurs. Generation Z demonstrates significantly higher reliance on digital platforms and social proof mechanisms, leading to elevated portfolio turnover but paradoxically improved risk-adjusted returns. Baby Boomers, despite lower turnover, show greater adherence to conventional wisdom and institutional guidance. We propose that the mechanism of the "digital stampede" rapid information cascades amplified by real-time connectivity represents a new behavioral phenomenon distinct from traditional herding. This research contributes to behavioral finance literature by bridging generational theory with information cascade dynamics and offers practical implications for financial advisors, fund managers, and policymakers seeking to understand investor behavior in an increasingly digitalized financial ecosystem.