Traders at a stock exchange notice that five traders on the floor seem to be selling more yen and purchasing more euros because of an expected decline in the yen. As a result, all other traders started to do the same. This is an example of the tragedy of the commons that creates a self-fulfilling prophecy when the yen does decline in value.
Explanation:
The tragedy of the commons is a problem in which results in due to the exploitation of the shared resources.The self objective is placed above the social interest.
It is due to the tragedy of the commons that the demand of the resources overwhelms its supply and at a later stage it becomes unavailable to everybody/all individuals. in this case every individual who consumes an additional unit directly harms others who can no longer enjoy the benefits.
From the question we can see that the demand of euros has increased and that of yen has decline ,so the traders started selling yen and buying more of euros resulting in tragedy of the commons
Answer: bandwagon effect
Explanation: The bandwagon effect describes the observation that people often do or believe what they think many other people do. All other traders starting to sell the yen for the euro because a few traders were doing so exhibits the bandwagon effect. By definition, the bandwagon effect is a psychological phenomenon in which people do something primarily because there are other people are doing it. This action is taken without regard of their own beliefs, which they may ignore or override.
