Discussion Board Replies

Definition: The bandwagon effect is a psychological phenomenon in which people do something just because other people are doing it regardless of their own beliefs. This is commonly observed in consumer behavior and investment activities (Chappelow, 2019).

Summary: The article entitled, “ The Bandwagon Effect” by Jim Chappelow discusses investing and financial markets can be vulnerable to the bandwagon effect because not only of the psychological and social factors occur but the prices of assets tend to rise as more people jump on the bandwagon. This creates a positive feedback and increased demand for a product. During the dotcom bubble, many tech companies emerged that had no business plans or visions but a catchy name. Despite this, these businesses attracted millions of dollars because of the bandwagon effect. Bandwagon effects can create problems in which it gives consumers an incentive to get a free ride on the information and preferences of other consumer. This can lead to information of a product being over or under produced or solely produced solely by marketers. The perfect example of this effect is consumer may purchase the item regardless if they need, want, or can afford the item (Chappelow, 2019)

Discussion: Consumers often rely on others to gather information and evaluate the quality of goods for them. They rely on their opinions in their purchasing behaviors. If consumption decisions are rational and people’s preferences are similar, then this is beneficial and useful for the company because the information appears accurate. Then it is wise for companies to follow the bandwagon’s lead and effectively outsource the cost of gathering information to someone else (Chappelow, 2019)

References

https://www.investopedia.com/terms/b/bandwagon-effect.asp Chappelow, J. (2019). The

Bandwagon Effect. Investopedia. J. Chappelow has written hundreds of business articles

and is an independent consulting economist. He has 12 years’ experience in economic

development, research, teaching, forecasting, and consulting. He is the former managing

economist and lead editor of ITR Economics.

References

https://www.psychologytoday.com/us/blog/stronger-the-broken-places/201708/the-bandwagon- effect The article discusses the bandwagon effect and how it was used in 19th century political

champaigns.

https://effectiviology.com/bandwagon/ This article discusses why people follow the crowd and

the how companies can use it to their advantage.