Note: I changed the answer to include the first cursed target. Mea culpa if this makes this answer less appealing.
No, the arrow targets either the first or the second peasant in line.
The ranged attack is made only once, against the first peasant, and the target changes to either the first or the second one in line, as each target was within 10' of him. The sequence ends, since only one attack was made; the attack is not being made against the second peasant. It simply resolves against him or the first cursed peasant instead of the original target. The DM must choose between the two cursed peasants in range of the curse, in some fashion.
The 'curse' of the shield changes the target, but does not make a new attack each time the target changes. The curse says "whenever a ranged weapon attack is made against a target [change the target to you instead]." The change of target only happens on the attack, not on the targeting. Since there's only one attack, there's only one change of target.
The ability happens when a ranged weapon attack is made against a target, not when a creature becomes the target of an attack.
The Shield's effect says:
Whenever a ranged weapon attack is made against a target within 10 feet of you, the curse causes you to become the target instead.
An attack occurs when an attack roll is made. "Making an Attack" (Player's Handbook, Dungeons and Dragons 5th Edition, p. 194):
- Choose a target. Pick a target within your attack’s range: a creature, an object, or a location.
- Determine modifiers. The DM determines whether the target has cover and whether you have advantage or disadvantage against the target. In addition, spells, special abilities, and other effects can apply penalties or bonuses to your attack roll.
- Resolve the attack. You make the attack roll. On a hit, you roll damage, unless the particular attack has rules that specify otherwise. Some attacks cause special effects in addition to or instead of damage.
If there’s ever any question whether something you’re doing counts as an attack, the rule is simple: if you’re making an attack roll, you’re making an attack.
Choosing the target is part of the attack, but only when the roll is made, does an attack occur. Once the attack roll is made, the attack is then made against the intended target, the Shield's effect then changes the target from the original target to 'you'. It's still just the one attack, so the ability only 'fires' once.