Revealed Wisdom of the Crowd: Informational Value of Bids

54 Pages Posted: 4 May 2021 Last revised: 5 Oct 2021

See all articles by Jiayu Yao

Jiayu Yao

Scheller College of Business, Georgia Institute of Technology

Mingfeng Lin

Scheller College of Business, Georgia Institute of Technology

D. J. Wu

Georgia Institute of Technology - Ernest Scheller Jr. College of Business

Date Written: April 29, 2021

Abstract

Traditional studies on the wisdom of the crowd focus on member characteristics that are either static (e.g., demographics) or slow to change (e.g., expertise). However, members of a crowd are different not only in terms of who they are but also what they do when faced with different opportunities. Using data from online debt crowdfunding, we propose and find significant informational value in the heterogeneity of observable actions of crowd members. We quantify investor behavior in two ways: bid size and bid timing. We find that loans funded with fewer but larger bids are less likely to default than those funded with a larger number of smaller bids. For loans with similar bid-amount distributions, those receiving larger bids earlier in the bidding process are less likely to default. These features also help improve the predictive performance of loan default models. Importantly, these features are easily accessible and less subject to privacy concerns. Our findings point to a novel direction of extracting wisdom of the crowd, new methods of evaluating loan quality in secondary markets, and have implications for the design of online crowdsourcing platforms in general.

Keywords: fintech, wisdom of the crowd, diversity, platform, crowdfunding

Suggested Citation

Yao, Jiayu and Lin, Mingfeng and Wu, D. J., Revealed Wisdom of the Crowd: Informational Value of Bids (April 29, 2021). Georgia Tech Scheller College of Business Research Paper No. 3837049, Available at SSRN: https://ssrn.com/abstract=3837049 or http://dx.doi.org/10.2139/ssrn.3837049

Jiayu Yao

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

United States

Mingfeng Lin (Contact Author)

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

United States

D. J. Wu

Georgia Institute of Technology - Ernest Scheller Jr. College of Business ( email )

800 West Peachtree Street, NW
Atlanta, GA 30308
United States
404-894-4364 (Phone)
404-894-6030 (Fax)

HOME PAGE: http://mgt.gatech.edu/wu

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