Bandwagon effect increases the value of a good as the number of buyers or users increase. The bandwagon effect is characterized by the individual adoption increasing in proportion those who have already done so. Bandwagon is a wagon which carries a band during the course of a parade, or other entertainment event. The bandwagon effect refers to the tendency among people to do something simply because others around them are doing it.
The phrase "jump on the bandwagon" first appeared in American politics in 1848 when Dan Rice, a famous and popular circus clown of the time, used his 'bandwagon effect' and its music to gain attention for his political campaign appearances. Bandwagon effect depends on the psychology of buying a product because it seems popular. Bandwagon Effect, Snob Effect, and Veblen Effect are discussed in Theory of Consumers' Demand.
On August 6, 2020, when Campbell Harvey and his co-authors first published their research, gold was priced at $2,069 per troy ounce, and investors continued to buy. “As bandwagon investors join the party, they create their own truth for a while,” Harvey said, citing Warren Buffet.
Bandwagon effect is also called the network effect, when a large number of buyers or users itself increases the value of a good. The bandwagon effect causes people to ignore their own beliefs and independent thought process, instead leading them to find comfort in the wisdom of the crowd. The bandwagon effect has been seen as the root cause behind the prevalence of irrational beliefs and practices among the masses. Everyone jumps onto the bandwagon of conventional opinion.
The most common example of the bandwagon effect is the prevalence of bullish and bearish sentiments in financial markets, which causes asset prices to deviate significantly from their underlying value. We saw bandwagon effect when the number of people with telephones or Facebook increased. Neither of these effects suggests that raising the price would boost demand.
When preference for a good increases as the number of people buying them increases, we call it the bandwagon effect, which is similar to veblen effect. Snob effect works quite contrary to the bandwagon effect. Bandwagon Effects, Snob Effects, and Veblen Effects are discussed in Theory of Consumers' Demand. The bandwagon effect is characterized by the probability of individual adoption increasing with respect to the proportion who have already done so. This is regardless of the underlying evidence.
The bandwagon effect is a phenomenon whereby the rate of uptake of beliefs, ideas, fads and trends increases the more that they have already been adopted by others. The tendency to follow the actions or beliefs of others can occur because individuals directly prefer to conform, or because individuals derive information from others. The increasing popularity of a product or phenomenon encourages more people to "get on the bandwagon", too. The bandwagon effect also explains why there are fashion trends.
The bandwagon effect also occurs in voting. Some people vote for those candidates or parties who are likely to succeed, hoping to be on the "winner's side" in the end. The bandwagon effect applies to situations involving majority opinion, such as political outcomes, where people go with the majority view. This can occur because individuals draw inferences from the decisions of others, as in an informational cascade.
In microeconomics, bandwagon effects play out in interactions of demand and preference. Here, the bandwagon effect arises when people's preference for a commodity increases as the number of people buying it increases. This interaction potentially disturbs the normal results of the theory of supply and demand, which assumes that consumers make buying decisions solely based on price and their own personal preference. Gary Becker has argued that bandwagon effects could be so strong as to make the demand curve slope upward.
Medical bandwagons have been identified as "the overwhelming acceptance of unproved but popular ideas". They have led to inappropriate therapies for numerous patients, and have impeded the development of more appropriate treatment. In Lawrence Cohen and Henry Rothschild's exposition 'The Bandwagons of Medicine' (1979), several of these therapeutic misadventures, some of which persisted for centuries before they were abandoned, substituted by another bandwagon, or replaced by a scientifically valid alternative. One who supports a particular sports team, despite having shown no interest in that team until it started gaining success, can be considered a bandwagon fan.
Aggregate Bandwagon Effects of Popularity
Information on Audiences' Movie Selections -
Xuexin Xu, W. Wayne Fu.
Abstract: This study empirically examines the bandwagon effect of product-popularity information on the choices of audiovisual content products. Regression analysis is conducted using the data of Hollywood movies' box office revenues in 73 countries during 2003–2007. The results confirm the aggregate bandwagon effect in audiences' selections of Hollywood movies and shows that the strength of the bandwagon effect is magnified by how uncertain people are about the quality of movies.