Should executive decision-makers pioneer innovations and risk early-mover costs, or follow peers, benefit from observational learning, but risk adverse similarity? This study examines the mechanisms underlying organizational herding behavior, revealing how environmental uncertainty shapes the risks and benefits of conformity versus independent strategic choices. Analyzing communication patterns from S&P 500 executive suites over 15 years, we uncover how uncertainty's scope creates distinct organizational pathways. Under local uncertainty—bounded and interpretable—conformity enables adaptive vicarious learning: leaders integrate peer signals with private information, reducing cognitive load and strategic risk while building organizational capabilities. This social learning reflects rational information cascades that enhance short-term performance. Under global uncertainty, however, conformity becomes maladaptive. Executive decision-makers experience strategic paralysis where conformity provides minimal differentiation, while pioneering leaders who resist herding pressure and introduce innovations early face persistent negative outcomes, bearing exploration costs that followers systematically avoid through observational learning. This asymmetry creates powerful psychological deterrents to independent decision-making. Most troubling is the temporal cognitive trap affecting conformers: initial capability gains and stock market rewards provide strong positive reinforcement, validating herding behavior. Yet these benefits systematically reverse over time as competitive convergence erodes performance. Executive decision-makers thus face a double bind: pioneering incurs immediate costs while herding delivers short-term rewards that become long-term liabilities. In this study, we illuminate how temporal dynamics can trap leaders between equally problematic behavioral choices.

Authors:
Erik Lang, NHH Norwegian School of Economics, Norway
William Ericson, Stockholm School of Economics, Sweden
Ivan Belik, NHH Norwegian School of Economics, Norway

About the Presenter(s)
Erik Lang, PhD candidate, Norwegian School of Economics. Interests: innovation economics and organizational behavior. Current projects: (1) mechanisms of organizational conformity and executive decision-making under uncertainty, (2) biases in LLMs...

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