Crowdfunding as Gambling: Evidence from Repeated Natural Experiments

43 Pages Posted: 6 Aug 2019 Last revised: 3 Oct 2019

See all articles by Tolga Demir

Tolga Demir

Sabanci University; Stockholm School of Economics; Swedish House of Finance

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation; Danish Finance Institute; Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies

Kourosh Shafi

California State University, East Bay

Date Written: July 31, 2019

Abstract

We explore whether sensation-seeking, a personality trait that involves risk-taking for novelty and thrill, is one of the underlying motivations for participating in peer-to-peer lending crowdfunding markets. To empirically substantiate this argument, we test whether individuals participating in Prosper, one of the largest lending markets in the U.S., reduce their lending activity when gambling in the form of playing the multistate lotteries Powerball and Mega Millions becomes more attractive. Lottery is a repeated natural experiment: Lottery jackpots are randomly won and a series of draws with no winners form large jackpots. We find that the thrill of winning a large jackpot lottery, perhaps intensified by advertising and media coverage around this event, fulfills some lenders’ desire of sensation-seeking and substitutes participating in Prosper, decreasing their lending activity. We discuss implications for lenders and borrowers, as well as platform organizers and policy makers.

Keywords: Peer-To-Peer Lending, Crowdfunding, Lottery, Gambling, Fin-Tech

JEL Classification: G23, G41

Suggested Citation

Demir, Tolga and Mohammadi, Ali and Shafi, Kourosh, Crowdfunding as Gambling: Evidence from Repeated Natural Experiments (July 31, 2019). Swedish House of Finance Research Paper No. 19-7, Available at SSRN: https://ssrn.com/abstract=3430744 or http://dx.doi.org/10.2139/ssrn.3430744

Tolga Demir (Contact Author)

Sabanci University ( email )

Sabancı Business School
Istanbul, 34956
Turkey
+902164839661 (Phone)

HOME PAGE: http://sites.google.com/view/tolga-demir

Stockholm School of Economics ( email )

111 60 Stockholm
Sweden

Swedish House of Finance ( email )

SE-113 83 Stockholm
Sweden

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

Danish Finance Institute ( email )

Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies ( email )

Drottning Kristinas väg 30
Stockholm, SE-100 44
Sweden

Kourosh Shafi

California State University, East Bay ( email )

25800 Carlos Bee Boulevard
Hayward, CA California 94542
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
41
Abstract Views
527
PlumX Metrics