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Do equity crowdfunding investors rationally or irrationally herd? We build a model of rational information aggregation where both informed and uninformed investors arrive sequentially and rationally choose whether and how much to invest. We compare the predictions of the model to several alternative models of irrational herding and no herding, and test those predictions using data on all investments on a leading European equity crowdfunding platform. We show empirically that the size and likelihood of a pledge is causally affected by the size of the most recent pledge, and by the time elapsed since the most recent pledge. These results are consistent with rational information aggregation, and inconsistent with naïve herding, independent investments, and common information shocks. However, there is still room for negative information cascades to occur. Implications for platform design and regulatory actions are discussed.

We characterize belief-free equilibria in infinitely repeated games with incomplete information with N ≥ 2 players and arbitrary information structures. This characterization involves a new type of individual rational constraint linking the lowest equilibrium payoffs across players. The characterization is tight: we define a set of payoffs that contains all the belief-free equilibrium payoffs; conversely, any point in the interior of this set is a belief-free equilibrium payoff vector when players are sufficiently patient. Further, we provide necessary conditions and sufficient conditions on the information structure for this set to be non-empty, both for the case of known-own payoffs, and for arbitrary payoffs.

We present an infinite-horizon model of endogenous trading in the art auction market. Agents make purchase and sale decisions based on the relative magnitude of their private use value in each period. Our model generates endogenous cross-sectional and time-series patterns in investment outcomes. Average returns and buy-in probabilities are negatively correlated with the time between purchase and resale (attempt). Idiosyncratic risk does not converge to zero as the holding period shrinks. Prices and auction volume increase during expansions. Our model finds empirical support in auction data and has implications for selection biases in observed prices and transaction-based price indexes. (JEL C43, D44, E32, Z11)

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