“Tigerblood”: Availability Cascades, Social Media, and the Environment of the Entrepreneurship

Abstract

Availability cascades are defined as disproportionately large increases in public discourse on certain events or topics which give rise to the ubiquitous use of the availability heuristic, thereby induce biases in decision-making. Empirical investigation into availability cascades in the social sciences is limited, especially in contexts where decisions are made in the face of considerable uncertainty. In this paper, we study the impact of availability cascades originating from two sources, the print and social media, in the context of technology-based entrepreneurship. First, we explore the conditions under which the rise of an availability cascade influences the nascent entrepreneur’s decision to incorporate a firm in the specific technology domain experiencing the cascade. Second, we test the effect of the availability cascade on the time taken for a nascent entrepreneur in the specific technology domain experiencing a cascade to receive first-round funding from a venture capitalist. Our results show the positive effect of both the social media information cascade as well as the print media information cascade on firm founding and first-round funding. Additionally, we show that the social media cascade mediates the relationship between the print media cascade and firm founding / funding, thereby showing the agenda-setting nature of interactive social media in the context of technology entrepreneurship. We test these hypotheses on entrepreneurship data obtained from VentureXpert and the Census Bureau, augmented with social media data from the three largest blogging platforms and print media data from newspaper articles collected through the Internet between 1995 and 2007. Our results provide evidence for the effect of availability cascades on the two decision-making contexts we address and also show support for the hypothesized mediation effect. Our work here is the first, to our knowledge, to show directly how social and print media may interact in influencing entrepreneurial decisions in a decentralized manner and also provides evidence on how social media plays an increasingly important role in agenda-setting in the economy.