The DAO, the first leaderless investment fund which operates on code for reaching consensus in decision-making, is championing for the supremacy of the "immutable, incorruptible" code to be freed from the common fallacies of human behavior such as cognitive bias and irrationality.

While the promise of technocratic governance sounds compelling, it is undermined by the illogical human behavior exhibited by the early instigators and investors which led to the inevitable downfall of The DAO, not just as a software program with an erroneous code, but a collective movement propelled by irrational motives.

After gathering honest feedback from early investors, one thing became clear: the potential pitfall had always been lurking somewhere deep in our consciousness from the beginning. It's the bandwagon effect, blind optimism and emotional judgement that made us turn a blind eye to the fatal flaws of the organization.

Our collective irrational investing behaviour manifests in a few ways, which we identify further on.

Bandwagon effect trumps rational evaluation

Being a DAO token holder presents a can't-miss-opportunity to potentially change history, because the fund is built on the wisdom of the crowd, which gives every vote the same weight in decision making.

Needless to say participating in such a scheme brings a feeling of significance to the individuals involved: it promises a nearly heroic act where everyone invested in it has a stake in shaping a futuristic movement that could change the world.

David Strayhorn, a self-proclaimed cyberpunk and Bitcoin enthusiast, compared investing in The DAO to the excitement of the rocket-building experiment in the movie "October Sky", where a bunch of high school kids tried to change history by taking up rocketry.

The community that supported The DAO - most of them cyberpunks, technocrats and idealists like Strayhorn - band together very closely on the values they hold near and dear to their heart. Such a close-knit community can breed acts of conformity without them being aware of it, such as making a highly risky investment decision without properly and rationally investigating the possible outcome.