Bandwagon Effect

DEFINITION of 'Bandwagon Effect'

A psychological phenomenon whereby people do something primarily because other people are doing it, regardless of their own beliefs, which they may ignore or override. The bandwagon effect has wide implications, but is commonly seen in politics and consumer behavior. This phenomenon can also be seen during bull markets and the growth of asset bubbles.

This tendency of people to align their beliefs and behaviors with those of a group is also called "herd mentality."

BREAKING DOWN 'Bandwagon Effect'

For example, people might buy a new electronic item because of its popularity, regardless of whether they need it, can afford it, or even really want it. In politics, the bandwagon effect might cause citizens to vote for the person who appears to have more popular support because they want to belong to the majority.

RELATED TERMS
  1. Socionomics

    The study of the relationship between social mood and social ...
  2. Behavioral Finance

    A field of finance that proposes psychology-based theories to ...
  3. Market Psychology

    The overall sentiment or feeling that the market is experiencing ...
  4. Inflationary Psychology

    A state of mind that leads consumers to spend more quickly in ...
  5. Loss Psychology

    The emotional aspects associated with investing and the negative ...
  6. Tight Monetary Policy

    A course of action undertaken by the Federal Reserve to constrict ...
Related Articles
  1. Investing Basics

    Tips For Avoiding Excessive Trading

    Learn to trade smart instead of gambling with your money.
  2. Retirement

    This Is Your Brain On Stocks

    Find out how the human mind can hurt investors' portfolios.
  3. Investing Basics

    Removing The Barriers To Successful Investing

    Learn how to stop using emotion and bad habits to make your stock picks.
  4. Active Trading Fundamentals

    An Introduction To Behavioral Finance

    Curious about how emotions and biases affect the market? Find some useful insight here.
  5. Term

    How Market Segments Work

    A market segment is a group of people who share similar qualities.
  6. Active Trading

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  7. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  8. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  9. Economics

    The Basics Of Business Forecasting

    Whether business forecasts pertain to finances, growth, or raw materials, it’s important to remember that a forecast is little more than an informed guess.
  10. Economics

    Forces Behind Interest Rates

    Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing.
RELATED FAQS
  1. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  2. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
  3. How do mutual funds split?

    Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
  4. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  5. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  6. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center