as a teenager Of course, you made the decision just because your classmates or members of your gang made the same decision. For example, you decided to go to a university because your gang mates applied to that university.
in the context of economy and business Your attitude is called wagon effect. But if done multiple times, this action can have serious consequences for the economy and for yourself.
Definition of Bandwagon Effect
wagon effect It is the tendency for a person to adopt certain actions, lifestyles, or behaviors simply because of others. Around him do the same, regardless of the personal value of each person. Another word that describes this is idea of the herd and afraid to miss (FOMO).
The term first developed in the United States in the 19th century, at which time a musician named Dan Rice used wagons (wagons) in musical parades. including campaigning for Zachary Taylor for President The term was used more and more in the 20th century, especially for political issues. Along with the time, now the distance wagon effect not only used in politics but also the economy, business and investment.
Cause of the Bandwagon Effect
1. Desire to be accepted
No one wants to be seen as weird. especially in any one group As a result, those who don’t want to be seen as weird will try to adopt the actions, behaviors and lifestyles of the people around them to make them part of the group.
For example at the beginning of this article. If your friend is applying to university Of course you want to go to that university. so you won’t be seen as a dishonest gang member Even if you have a university of your own choice.
in many cases, wagon effect It can also arise from a desire to stand out. For example, your peers attended a university but they majored in low passing scores. want to be recognized as not just part of the group But it’s part of a wise group. You decide to study in a major with high passing grades. Even if I don’t know anything
2. Desire to be right
Too often the truth in our society is what society assumes to be true regardless of the essence of the truth. pick up
other neighbors Yours thinks they are a sex worker (PSK) due to his desire to be right when he gets kicked out of the neighborhood. You choose to remain silent even though you know your new neighbor works as a singer at several weddings.
3. Group thinking
Unconsciously or unconsciously, people will assume that what most people believe is true. The result is that more people jump on the stream. The more people will follow.
A simple example is you’re hungry on the way and looking for a food stall. Instead of choosing a shop that looks quiet You tend to choose to eat at a restaurant that looks crowded. The reason is simple: people who eat a lot say it’s delicious. In fact, it’s not necessary to let the taste of these dishes be to your taste.
The Effects of Cart Groups on Consumer Behavior
Consumers often obtain information about a product by seeking other people’s opinions about the product. So they don’t need to purchase the product by buying it directly. Take a simple example: You buy skincare based on product reviews on the Internet or social media.
But keep in mind that each consumer’s preferences are different. It could be that what they think is good is what you don’t think is good. And vice versa. In addition, business people who know the trend. wagon effect These are often used for marketing purposes.
For example, by placing positive testimonials on social media. Remove negative testimonials Ask the staff to bring the car to park in front of the shop. or even buy a testimonial from a robot Therefore, it is ineffective if you buy the product solely based on other people’s testimonials.
Bandwagon Effect in Investing
effect wagon effect In the world of investment and finance, it seems more realistic than in real business. This is not only due to the psychological and cost-effectiveness of absorbing information. But also the tendency for asset prices to rise as more people buy them.
The first example of the wagon effect in the investment world was investing during the dot-com bubble in the United States in the late 1990s. At that time, investors poured millions of dollars to fund startups. The technology side that really doesn’t have a clear vision, mission, and product just because it has. wagon effect this.
The second example is the case short squeeze GameStop stock that happened at the beginning of 2021. short squeeze It is the action of the merchant “kicking”. short seller Exit the market by buying large volumes of shares to drive the share price higher, in the case of GameStop. short squeeze It is run by retail investors and is successful because retail investors take advantage of it. wagon effect Collected on the Reddit platform.
How to Avoid the Bandwagon Effect
1. Always Cross
The first step to avoid wagon effect Crosschecks are always made, for example when choosing a food stall in an unfamiliar location. First you need to look at reviews on Google Maps or other sites. Not only based on the number of visitors Make sure you look for reviews on multiple sites at once. The reason for this is that it’s possible that the reviews on the site are written by bots.
2. Get to know your personal preferences.
To be a rational consumer and investor You must know your personal preferences first. in case of investment These personal preferences can be various technical and fundamental indicators. that you usually use before buying an instrument
You can then use this personalization to filter out the available information and make decisions based on it. For example, stock A’s price rose considerably. However, after examining other basic conditions, you find that stock A’s price has not increased. Followed by earnings and other financial indicators. As a result, you cannot buy shares.
3. Get more references
Maybe it’s because you like influencers because of their good investing skills. But instead of investing just because of the influence of influencers. You should look at the opinions of other influencers. with opposite opinions and analyze stocks yourself The goal is to give you a complete picture of what the stock market condition or property is recommended by your idol.
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