Information Systems and e-Business Management

, Volume 12, Issue 3, pp 443–464

Externalities, incentives and strategic complementarities: understanding herd behavior in IT adoption

  • Xiaotong Li
  • Robert J. Kauffman
  • Feifei Yu
  • Ying Zhang
Original Article

DOI: 10.1007/s10257-013-0231-2

Cite this article as:
Li, X., Kauffman, R.J., Yu, F. et al. Inf Syst E-Bus Manage (2014) 12: 443. doi:10.1007/s10257-013-0231-2

Abstract

Herd behavior arises in many instances of information technology (IT) adoption. This study examines the economic and behavioral bases for herd behavior and decision conformity. We investigate the roles of payoff externalities, observational learning and managerial incentives in influencing IT adoption decision-making. Our study underscores the benefits of viewing various drivers of IT adoption herding in a unified framework focusing on equilibrium coordination under strategic complementarities. Motivated by the recent advance in behavioral economics and behavioral game theory, our study relates IT adoption herding to a range of individual-level problems, including managerial incentives, managerial behavioral biases and limited rationality. We develop a coordination game of IT adoption within the unified framework. Our analysis of the game demonstrates that, under strategic complementarities, behavioral biases or incentive problems of a small minority of decision-makers may dramatically impact aggregate outcomes.

Keywords

Behavioral game theory Bounded rationality Economic theory Equilibrium coordination Herd behavior Informational cascades IT adoption Managerial behavioral biases Network effects 

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  • Xiaotong Li
    • 1
  • Robert J. Kauffman
    • 2
  • Feifei Yu
    • 3
  • Ying Zhang
    • 3
  1. 1.College of Business AdministrationUniversity of Alabama in HuntsvilleHuntsvilleUSA
  2. 2.School of Information SystemsSingapore Management UniversitySingaporeSingapore
  3. 3.Business School of Hohai UniversityNanjingChina

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