Experts vs. Non-Experts in Online Markets: Evidence from a Natural Experiment in Debt Crowdfunding

50 Pages Posted: 23 Jun 2018 Last revised: 26 May 2020

See all articles by Mingfeng Lin

Mingfeng Lin

Scheller College of Business, Georgia Institute of Technology

Richard W. Sias

University of Arizona - Department of Finance

Zaiyan Wei

Purdue University - Krannert School of Management

Date Written: May 21, 2020

Abstract

The dynamics between coexisting experts and non-experts has important implications for online market and platform design. We study their relationship in the context of crowdfunding. While crowdfunding originated as a non-expert market, experts have become active participants. We investigate the costs and benefits associated with experts competing with non-experts during a unique period in one crowdfunding market when every investor was given the same unambiguous signal of relative valuation. Contrary to previous evidence, we find that experts are substantially better than non-experts at using common information to evaluate project success. Moreover, because experts overinvest in the best projects, experts outperform non-experts who invest more heavily in worse projects. Thus, expert participation in crowdfunding markets has both positive and negative implications for these platforms. On the positive side, experts increase the efficiency of these markets, which can drive both borrowers and lenders to the market. On the negative side, the higher returns garnered by experts are at the expense of non-expert investors. Surprisingly, however, the latter effects are quite small. Our findings provide an important contribution to understanding the relationship between experts and non-experts in online markets.

Keywords: FinTech, Peer-to-peer lending, Experts, Non-experts, Crowdfunding

JEL Classification: G10, G11, G14, G18, G23, G4

Suggested Citation

Lin, Mingfeng and Sias, Richard W. and Wei, Zaiyan, Experts vs. Non-Experts in Online Markets: Evidence from a Natural Experiment in Debt Crowdfunding (May 21, 2020). Georgia Tech Scheller College of Business Research Paper No. 18-22, Available at SSRN: https://ssrn.com/abstract=3185608 or http://dx.doi.org/10.2139/ssrn.3185608

Mingfeng Lin

Scheller College of Business, Georgia Institute of Technology ( email )

United States

Richard W. Sias (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Zaiyan Wei

Purdue University - Krannert School of Management ( email )

100 Grant St
West Lafayette, IN 47907-2076
United States
(765) 494-5958 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
206
Abstract Views
1,328
rank
160,389
PlumX Metrics