An Empirical Examination of the Antecedents and Consequences of Contribution Patterns in Crowd-Funded Markets

Abstract

Management, as well as seminar participants at the Fox School of Business at Temple University for useful suggestions. They also thank Ashish Agarwal, Avi Goldfarb, Yili Hong, Pei-yu Chen and Evan Polman for providing helpful comments. Anindya Ghose acknowledges funding from the WCAI (Wharton Customer Analytics Institute) and NSF CAREER Award IIS-0643847.

Guiding the Herd: The Effect of Reference Groups in Crowdfunding Decision Making

“…Another research stream concentrates on factors that influence funders' decision process and contribution patterns such as funders' cultural and geographic differences [1][17] [45], desire for social interactions with those who are involved in to the project [33] and funders' altruism [16]. The majority of the studies in the latter research stream focus on herd behavior.…”

“…Several studies have found support for this herd behavior [9][12] [36] [44]. However, further evidence shows that this herd behavior leads to negative externalities in the form of suboptimal decisions [16] [56]. Risky or bad projects are still funded since funders make decisions not based on the characteristics of the project or its initiator but based on the number of people who have invested before them.…”

“…Based on this rationale, we argue that funders in crowdfunding websites will follow the decisions of reference groups as a common heuristic to deal with the existing uncertainty. The extant crowdfunding literature provides limited support as the studies show herd behavior as funders follow the crowd's decision [16][36] [56].…”

An Empirical Investigation on the Impact of Crowd Participation on the Degree of Project Success: The Perspective of Crowd Capital

“…That is, individuals would decrease their contributions when others have already contributed more to a project and turn to other projects with less success [6]. This is because the crowds participant in donation-based crowdfunding platforms for the purpose of helping others without tangible or financial rewards [6,29].…”

“…For project fundraisers, they acquire disperse resources (i.e., money) from different crowds, which is manifested on the crowdfunding platforms through the participation or contribution behaviors of different crowds [6]. On a crowdfunding platform, there are three ways for crowds to participate: (1) funds pledge, (2) popularity creation (i.e., clicking like), and (3) on-site communication (i.e., interaction between the crowds and fundraisers).…”