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Vicarious Goal Pursuit Outweighs Herding in Crowdfunding: Evidence from Kickstarter.com

28 Pages Posted: 19 Apr 2017 Last revised: 3 May 2017

Hengchen Dai

University of California, Los Angeles (UCLA) - Anderson School of Management

Dennis Zhang

Washington University in St. Louis - John M. Olin Business School

Date Written: April 17, 2017

Abstract

Reward-based crowdfunding is a popular fundraising mechanism whereby creators of innovative projects solicit capital from backers and offer future rewards in return. We examine backers' contribution patterns using a novel dataset on 26,516 projects at 10-minute resolution from Kickstarter - the largest crowdfunding website where creators only receive capital committed by backers and deliver rewards if they reach a specific funding goal. Past research built on standard utility-based theory has largely focused on economic factors, concluding that backers are more likely to fund a project when they (a) observe greater contributions from other backers (i.e., herding) or (b) are not concerned about the project failing at its funding goal (i.e., likelihood of success). Contrary to this view, we find that backers are nearly three times as likely to fund a project right before its funding goal is met as are they right after. Such a "vicarious goal pursuit" effect is stronger when backers' contributions to a project are motivated more by their desire to help the creator. We provide the first clean evidence for a previously overlooked non-economic factor in the crowdfunding context - backers' altruistic motives to help creators to reach their funding goals, a factor that is sufficiently strong to outweigh the opposing effects of economic factors. Altogether, this research advances the field's understanding of backers' motives and underscores the importance of incorporating social preferences into crowdfunding model.

Keywords: Retailing, Crowdfunding, Goal, Social Preferences, Herding

JEL Classification: D03, D12, D83

Suggested Citation

Dai, Hengchen and Zhang, Dennis, Vicarious Goal Pursuit Outweighs Herding in Crowdfunding: Evidence from Kickstarter.com (April 17, 2017). Available at SSRN: https://ssrn.com/abstract=2954217 or http://dx.doi.org/10.2139/ssrn.2954217

Hengchen Dai

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Dennis Zhang (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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