Herding Among Retail Shoppers: the Case of Television Shopping Network

Herding behavior refers to the behavior of individuals behaving similarly as a group without directions to coordinate. Herding can demonstrate rational characteristics. When consumers believe that others may have private information about a product, they infer unobserved information through other people’s behaviors, thereby engaging in similar actions themselves. While rational herding behavior has been found mostly in high involvement environments such as the financial markets, this paper provides evidence that such behavior may also occur in a comparatively lower involvement environment such as retailing. To demonstrate herding behavior and test shoppers’ rationality in such, the authors employ a unique dataset from a major TV shopping channel. In this setting, information about other buyers’ purchase decisions is only sometimes observed by shoppers. Evidence suggests that herding happens among shoppers and the herding behavior appears to exhibit rationality. The authors find that herding effects (1) are stronger when relative price discount is smaller, (2) are more prominent for a product category with less digitalizable attributes, and (3) appear to happen mainly in the earlier part of a sales pitch when shoppers have less information about a product and are more uncertain about their product valuation.