How Wise Are Crowds on Crowdfunding Platforms?

15 Pages Posted: 9 Jan 2020

See all articles by Gilles Chemla

Gilles Chemla

Imperial College Business School; CNRS ; Centre for Economic Policy Research (CEPR)

Katrin Tinn

McGill University - Desautels Faculty of Management; Centre for Economic Policy Research (CEPR)

Date Written: December 14, 2019

Abstract

While firms have obtained outside financing from large numbers of investors on financial markets for centuries, online crowdfunding platforms have only emerged as a major source of funding for start-ups and new projects for a decade. The information available to backers on crowdfunding platforms is generally coarse. This paper surveys the existing literature on the extent to which crowdfunding harnesses the wisdom of crowds. We discuss two broad categories of crowdfunding. Reward-based crowdfunding platforms such as Kickstarter, where backers typically have private and independent valuations, appear to offer environments favorable to the wisdom of crowds. In contrast, initial coin offerings (ICOs) offering services with network externalities and security-based platforms with common values appear to exhibit some results eliciting valuable information, but several results appear to point to informational cascades.

Keywords: crowdfunding, backers, reward-based, securities-based, ICOs, informational cascades, wisdom of crowds

JEL Classification: D82, G14, G23, G32, G5, L26, L86, M13, M21, M31

Suggested Citation

Chemla, Gilles and Tinn, Katrin, How Wise Are Crowds on Crowdfunding Platforms? (December 14, 2019). Available at SSRN: https://ssrn.com/abstract=3506377 or http://dx.doi.org/10.2139/ssrn.3506377

Gilles Chemla (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 207 594 9161 (Phone)
+44 207 594 9210 (Fax)

CNRS ( email )

Dauphine Recherches en Management
Place du Marechal de Lattre de Tassigny
Paris, 75016
France
331 44054970 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Katrin Tinn

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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