Confidence Games and Herd Instincts

This chapter examines how behavioural biases, particularly overconfidence, social conformity, and herd instincts, undermine the rational functioning of sustainable markets. Despite the ethical foundation of Environmental, Social, and Governance (ESG) investing, investor decisions are often shaped by psychological shortcuts and collective behaviour, leading to the inflation of green asset bubbles, mispricing of sustainability risks, and susceptibility to narrative-driven fads. Drawing on behavioural finance theory, market data, and Southeast Asian case examples, this chapter reveals how confidence games and imitation dynamics distort capital flows in ESG markets. It argues for the need to recognise and mitigate these behavioural distortions to preserve the credibility and efficiency of sustainable finance.