The Circular Effects of Popularity Information and Electronic Word-of-Mouth on Consumer Decision-Making: Evidence from a Crowdfunding Platform

Potential backers of crowdfunding campaigns often need to make investment decisions based on limited information, as the project they invest in has not come into existence at the time the campaign is running. As a consequnce, other evidence for the trustworthiness and quality of a crowdfunding campaign, such as popularity information and electronic Word-of-Mouth (eWOM), are becoming increasingly important. In order to identify interdependencies between these influntial factors and the backers´ decisions, we deploy the Panel Vector Auto-Regression (PVAR) methodology to estimate impulse-response functions that depict the response of one variable to a shock in another variable. Preliminary results from Kickstarter suggest that a positive shock in popularity information is associated with a higher number of campaign backers in the next period. The same is tru for eWOM within the social networks Twitter and Facebook. Despite strong feedback cycles within platforms, our preliminary results show little evidence for cross-platform effects between social media and the number of backers and vice versa. First results show that our current understanding of the impact of popularity information and eWOM on decision making is far from conclusive. We will further validate these findings by extending the dataset, both in time and scope.