The emergence and effects of fake social information: Evidence from crowdfunding

Abstract

In recent years, the growing success of social media has led to a proliferation of social information such as customer product reviews and product ratings in electronic markets. While this information can serve as a quality signal and help consumers to better assess the quality of goods before purchase, its impact on consumer decision-making also incentivizes sellers to game the system by creating fake data in favor of specific goods in order to mislead consumers deliberately. Consequently, consumers could make suboptimal decisions or choose to disregard social information altogether. Although few studies have been devoted to identifying fake quantitative social information such as fake product rankings and ratings, tracing and examining the effects of such fake information on consumers' actual financial decision-making over time has thus far received only little research attention. In this exploratory study, we assess the effects of non-genuine social information on consumers' decision-making in the context of reward-based crowdfunding. Specifically, we capture unnatural peaks in the number of Facebook Likes that a specific crowdfunding campaign receives on the platform Kickstarter and observe subsequent campaign performance. Our results show that fake Facebook Likes have a very short-term positive effect on the number of backers funding the respective crowdfunding campaign. However, this short-term peak is followed by an immediate, sharp drop in the number of backers funding the campaign reaching levels that are lower than prior to the occurrence of the non-genuine social information, leading to a total negative effect over time. We further reveal circumstances that foster this artificial manipulation of quality signals, including market and campaign characteristics. Key implications for research and practice are discussed.