What's in a 'Username'? The Effect of Online Anonymity on Herding in Peer-to-Peer Lending

This research examines the role of online anonymity in shaping herding behavior in peer-to-peer (P2P) lending markets. Drawing on theories from social psychology literature, we argue that a lender forms different credibility perceptions toward preceding peers per their anonymity status, and then uses such perceptions to adjust her herding momentum toward them. We collect data from a leading P2P lending platform and classify individuals’ usernames into either anonymous or real-sounding group. A cross-classified multilevel model is developed to explain the variation in individual lending amounts, while accounting for lenders’ choice of loan listings and unobserved heterogeneity at the listing and the lender level. To our surprise, the results show that online anonymity intensifies herding: successors demonstrate a stronger herding magnitude toward predecessors who have anonymous usernames than those who have real-sounding ones. This finding, which we attribute to successors’ perception of high expertise toward online anonymity, challenges a conventional wisdom that considers identity concealment a negative factor for source credibility. An extended analysis further reveals that the uncovered positive effect of anonymity on herding is accentuated in the early stage of the fundraising window but attenuated on borrowers with real-sounding usernames; nevertheless, we find no such discrepancies between listings that are assigned with high-risk and low-risk credit grades. Our work contributes to literatures on the impact of anonymity and herding in online environments.