Following in the Footsteps of Others: Social Proof in Angel Groups

This study develops a theory of social proof in angel investing. We propose that availability bias leads angel group members to copy the highly visible decisions of new investors evaluating the same opportunity (external social proof) and overlook the more insightful reinvestment decisions of prior investors (internal social proof). We also theorize that more experienced investors generally herd less but selectively imitate knowledgeable investors from prior rounds. A study of investments by 469 angel group members and a vignette experiment with 367 participants support our hypotheses. Our findings contribute to research on social proof, decision-making under uncertainty, and investment experience.