Bounce-back Effect

The bounce-back effect occurs when, after experiencing a significant decline in confidence or enthusiasm—such as in the stock market or consumer spending—people or markets quickly recover and return to prior levels. It reflects a natural tendency to rebound from setbacks, often driven by optimism or positive news. For example, if a stock drops sharply, investors might buy more, expecting the value to rise again. This phenomenon highlights how emotional reactions and expectations can influence economic or market behavior, often leading to swift recoveries following a downturn.