What is the difference between the ratchet effect and the demonstration effect?

There is only one difference in meaning between the ratcheting effect and the demonstration effect:

1. Ratcheting effect

The ratcheting effect refers to people’s consumption habits It is irreversible after formation, that is, it is easy to adjust upward but difficult to adjust downward. Especially in the short term, consumption is irreversible and its habitual effect is large. This habit effect makes consumption depend on relative income, that is, relative to one's past peak income.

2. Demonstration effect

When consumers understand and deal with their own income, consumption and their interrelationships, they will unconsciously compare with other consumers to determine where they belong. , at this time, the influence of other consumers on this consumer is called the demonstration effect.

Extended information:

Necessary conditions for the "ratchet effect" to occur

1. The cooperation between project managers and developers is long-term.

In a temporary small software project team, due to the short development cycle and small workload, there is no obvious difference in the effort or level of the developers, and the project manager does not have the past performance of the developers. reference to evaluate its current performance. Or in large software projects, due to different technical support needs, project teams often second people from different departments to join (the seconded personnel return to the original department after completing the work).

2. There is information asymmetry between project managers and developers.

The key to the "ratchet effect" is that project managers lack an objective evaluation standard for how to view the performance of developers. The key reason for this phenomenon lies in the information asymmetry between the two parties.

3. Developers are “rational people”.

The so-called "rational person" refers to a person who can fully understand his own interests and take correct countermeasures to maximize his own interests. If the "rational person" assumption does not hold true, a software developer will continue to work hard even if he knows that the consequence of working hard is that the project manager will raise his performance evaluation standards. At this time, there is no "ratchet effect".

Baidu Encyclopedia - Ratchet Effect

Baidu Encyclopedia - Demonstration Effect