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.