The Bandwagon Effect - Hop On!

If everyone's thinking the same, then nobody is really thinking.

Ever heard of the popular phrase, "Monkey See Monkey Do"?

Well, apart from dwelling into stories based on this phrase in grammar classes, it is essential to say that the phrase is also used to aptly describe a phenomenon in economics and that is the Bandwagon Effect. The term "Bandwagon Effect" arises from the event where a bandwagon is used in a parade to rally people to jump on board and enjoy music. It is a psychological impulse that compels members of the society to behave in a way that conforms to ideals, beliefs, or trends simply because their peers are involved. Thus, to put it simply, it is a phenomenon in which people tend to follow something because others are doing it too.

Also known as "Herd Mentality", the Bandwagon effect is a self-reinforcing strategy that individuals use to gain inclusion in certain classes. It is often said that the Bandwagon effect serves as a mental shortcut for the population. Perhaps it is due to this effect that people prefer buying an Apple iPhone even though they do not need it, just to show their social standing in the society.

In economics, the bandwagon effect has a direct impact on consumer behavior. Several trends in the market are caused by this phenomenon. It clouds the judgement and rationality of consumers, who, overlooking their preferences, income and needs, get swayed by a wave of popularity. It also intervenes with the effect of price on demand and acts as a paradox, contradicting the law of demand. However, in certain instances, the bandwagon effect might also be desirable. It helps people who do not have access to the necessary resources or information to make and evaluate decisions based on the knowledge and opinions of those who are well-read and informed.

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The Bandwagon effect is predominantly seen in the Stock Market. Often, investors invest in a stock just because others are doing so. They do not use technical or fundamental analysis of their own which has often proved to be counterproductive in the long run. The devastating consequences of the Harshad Mehta Scam, wherein a large number of people placed their faith in stock with farce rising prices, serves as the prime example of this behavior.

This concept also gives rise to snob appeal and the Veblen effect, with Apple products being a prime example. The existence of the Bandwagon effect in politics and society is as widespread as in any other aspect of the economy. Social practices like dowry and political practices like the adoption of revolutionary French principles into Constitutions of countries across the world are significant instances. This effect is also believed to heavily influence elections as voters are drawn to political parties or candidates that they perceive to be popular and therefore more likely to win the elections, out of a self-imposed need to be on the winning side.

The bandwagon effect permeates many aspects of our lives, from what we wear to what we eat to what we believe. It affects our discretion as well, whether or not we are consciously aware of it. This theory is a testament to the cliché, "A man is known by the company he keeps".