Herding behavior as a network externality

Gordon Burtch

Research output: Chapter in Book/Report/Conference proceedingConference contribution

18 Scopus citations


Crowd-funding markets have recently emerged as a new avenue for entrepreneurs to raise funds. In these markets, any individual can pitch ideas and interested others can then invest in them. These markets provide investors with rich information on the investment decisions of prior others, thus they are rife with the potential for social influence. With this in mind, I examine a crowd-funded market for fashion, empirically evaluating some implications of Banerjee's "simple model of herd behavior." Specifically, I examine the implication that an increase in the number of observable decision makers within a marketplace should drive an increase in herding, because a greater number of inexperienced deciders will lower the average level of private knowledge in the market. I find evidence that supports this notion. Further, I identify a negative association between herding and the optimality of investor decision-making, supporting the characterization ofherding as a negative network externality.

Original languageEnglish (US)
Title of host publicationInternational Conference on Information Systems 2011, ICIS 2011
Number of pages16
StatePublished - Dec 1 2011
Externally publishedYes
Event32nd International Conference on Information System 2011, ICIS 2011 - Shanghai, China
Duration: Dec 4 2011Dec 7 2011

Publication series

NameInternational Conference on Information Systems 2011, ICIS 2011


Other32nd International Conference on Information System 2011, ICIS 2011


  • Crowd-funding
  • Electronic commerce
  • Herding behavior
  • Network effects


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