Situational influences are external factors, such as environmental or cultural elements, that shape our thinking, decision making, and behavior.
Social psychologists have studied how much situational influences affect our behavior
and have found that even good people with honorable motives can and often will be
influenced to do unethical things when put into difficult situations. Experiments haveshown that even people who consider themselves strong, independent, free thinkers will conform to social pressures in many situations. The bystander effect, for example,demonstrates that people are less likely to intervene in an emergency when others are present. Fortunately, experiments have also shown that situational influences can induce people to act more ethically. For example, people tend to behave more ethically when they think someone else is watching or when there is a mirror placed close to them. The important concept to understand is that situational influences have a very powerful and often unrecognized effect on our thinking and behavior. Thus, learning to recognize situational influences is critical to making good decisions.
Common situational influences in the investment industry that can shape thinking and behavior include money and prestige. Situational influences often blind people to other important considerations. Bonuses, promotions, prestige, and loyalty to employer and colleagues are examples of situational influences that frequently have a disproportionate weight in our decisionmaking. Our brains more easily and quickly identify, recognize, and consider these short-term situational influences than longer-term considerations, such as a commitment to maintaining our integrity and contributing to the integrity of the financial markets.