Do small funding amounts lead to reverse herding? A field experiment in reward-based crowdfunding

Abstract

Several biases are known to influence funding decisions in crowdfunding. Among these biases is herding behavior; that is, the tendency to imitate the funding decisions of others. Herding is a very robust phenomenon in crowdfunding and uniformly characterized as a positive reinforcement effect. We challenge this characterization and ask whether the funding decisions of others may in fact have a negative effect and lead to a reduction of follow-up funding decisions if they are very small – a phenomenon to which we refer as reverse herding. We conducted a field experiment at a reward-based crowdfunding platform by randomly contributing small funding amounts to some campaigns while keeping track of a non-manipulated control group. Our findings support the notion of reverse herding. The number and amount of contributions by the crowd following our small funding amounts were fewer and smaller than in the control group. We discuss reverse herding in relation to established crowdfunding concepts and formulate a dilemma of small contributions: Although small contributions are a fundamental part of crowdfunding, they can also cause the detrimental effect of reverse herding. Practical and theoretical implications of reverse herding are discussed and several opportunities for future research are outlined.