What is the Media Effect?

The media effect refers to how particular news and stories that the media transmits can influence people and society. The media can pass the information to people using different means such as film, radio, television, newspapers, magazines, books, video games, websites, and music.

How does the Media Effect Work? 

There are debates among communication scholars on the degree to how, why, and when, the media impact people. Despite the arguments, the theory, to some extent, is correct. For example, when investors read an article or a headline, they may respond to the information or news by taking action. The media effect is more common in the mortgage market, where there is usually a sharp increase in the prepayment rates when media airs or publishes specific news or stories. Some of the popular press that most investors like watching include the Wall Street Journal, Barrons, the New York Times, Seeking Alpha, Bloomberg, Quartz, etc. An increase in the number of mortgages refinancing during periods of low-interest rate has, in most cases, been attributed to the media effect. A good example is the New York Times that always runs stories whenever there is a drop in interest rates and how it relates to mortgages. Not that there is a likelihood that those investors who read those articles will increase and refinance their mortgages prepayment rates. Other investors who observe such trends and anticipate the increase in the refinancing, may also take positions after the immediate release of the interest rates.

Types of Media Effects Theories

There are two types of theories when it comes to media effects (direct and indirect effects). There are also different assumptions as far as direct effects theory is concerned. The assumptions are as follows:

• Media messages have power over other influences
• People are passive media consumers, and their responses are predictable
• People are by nature intuitive and irrational
• Media is a significant contributor to the ills in society and has universal and immediate effects

The indirect effects theory, also known as conditional effects theory asserts that individuals perceive and retain information in different ways.