Headline effect refers to the effect a negative news report in media can cause to a company or an Economy. Many economists believe that a negative new report in the media about a company can make investors reluctant to invest money in the company and also consumer demand for the company’s products and services will fall.
As hard as it is to digest, people’s reaction to negative news is stronger than their reaction to positive news. Even when a government agency or the central Bank releases a negative or unfavourable economic report. People comprising of traders, investors and others react to the bad news by converting, selling or taking away funds so that their investments and business is not affected. While this is an expected reaction from the general public, a negative report in the media can worsen the situation.
A neuroscientist from the University of Western Australia, Ullrich Ecker, says that the initial Impression created by media headlines are not easily left out. Even the news reports have a contradicting report with the headline. Ecker found that the news article readers were more likely to retains the information that conforms to the ideas that they have understood from the headline. They are more likely to forget information that diverges from the headline.
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People become more cautious about reports that appear in news. For instance, Julie is a housewife and manages the finances of her household. On a bright Sunday morning, as she was watching the morning hour news, she comes across a report about the rising prices of gas cylinders.
Julie is frustrated since she needs a minimum of two gas cylinders for her to run her home smoothly every month. Though the news report mentioned prices of gas cylinders have risen in the headline, the report states that the prices have increased from Rs. 600 to Rs. 650.
This means, that Julie will have to cash out an extra Rs. 100 per month to purchase her normal routine. But Julie has been put off by the headline and starts contemplating how to keep the usage to one cylinder a month so as to save money.