Financial Incentives and Herding: Evidence from Two Online Experiments

Abstract

Social conformity and information‐based herding have been studied extensively in the social sciences, but there is little experimental evidence on how financial incentives impact the likelihood that an individual will follow the crowd. We present the results of a pair of two‐stage online experiments where we use answers to and confidence about trivia questions—with and without information about the choices of others—to test the impact of financial incentives on an individual's likelihood of engaging in herd behavior (i.e., switching their answer to the most popular answer when it is revealed). We find strong evidence that individuals are more likely to herd when there are financial incentives to be correct, suggesting that individuals are less likely to rely on their own beliefs and judgments when the stakes are higher. We also exploit the unique design of our experiments to show that in the absence of information about others' choices, men report higher levels of confidence than women.

The power of social influence: A replication and extension of the Asch experiment

“…Bhanot and Williamson [ 6 ] conducted online experiments (using Amazon Mechanical Turk) in which 391 participants answered 60 multiple-choice trivia-knowledge questions while the most popular answer was displayed at each question. Correct answers were incentivized randomly with $0, $1, $2 or $3 each in a within-subject design, i.e.…”

“…randomized over trials, not over subjects. Bhanot and Williamson [ 6 ] found that monetary incentives increase the proportion of answers that align with the majority. Hence, the studies using incentives yield inconclusive and contradicting results: Particularly, Baron et al [ 5 ] found both an accuracy-increasing and accuracy-decreasing effect of monetary incentives depending on task difficulty.…”

“…A decreased conformity rate was only found in situations with easy tasks. Bhanot & Williamson [ 6 ] conducted two online experiments and found that incentivizing correct answers increases the number of conforming answers. Fujita and Mori [ 7 ] compared group reward and individual rewards in the Asch experiment and found that conformity vanished in the individual reward condition.…”

Impact of College Students’ Learning Adaptation on Learning Conformity Behavior in Hengyang: Moderating Role of Peer Attachment

“…In these cases, individuals are less likely to rely on their own beliefs and judgments, signifying that, even when the majority’s claim is wrong, an individual may still follow the majority’s opinion. From the 1990s, scholars in the marketing and finance fields invested in this theory (Bhanot & Williamson, 2020 ; Bikhchandani & Sharma, 2000 ; Gong et al, 2022 ; Mowen & Minor, 1995 ; Teng & Liu, 2014 ; Wilkie, 1994 ; Yan et al, 2012 ); however, few studies have been conducted on this topic in the education field. Some results indicated that female adolescents outperform male adolescents in education from the perspective of gender conformity pressure (Egan & Perry, 2001 ; Heyder et al, 2021 ; Vantieghem et al, 2015 ), and Asch ( 1956 ) experimentally found college students showcased conformity behavior in comparing bus routes.…”

“…Some results indicated that female adolescents outperform male adolescents in education from the perspective of gender conformity pressure (Egan & Perry, 2001 ; Heyder et al, 2021 ; Vantieghem et al, 2015 ), and Asch ( 1956 ) experimentally found college students showcased conformity behavior in comparing bus routes. Adults are more likely to conform when there are financial incentives to be collected (Bhanot & Williamson, 2020 ); therefore, the incentive for college students to apply for a job or enter graduate school after they obtain a degree may also motivate them to adopt conformity. Thus, exploring what factors will affect college students’ conformity learning behavior is a topic worthy of further study in the field of education.…”