The Attention Economy of Crowdfunding: Investor Attention and Decisions

Abstract

Crowdfunding has become a popular way for entrepreneurs to seek investments as it bypasses traditional financial intermediaries to provide entrepreneurs direct access to retailer investors. Disintermediation, however, could exacerbate information asymmetry between entrepreneurs and retail investors and require significant attention from retail investors to acquire and digest project information. As attention has increasingly become a scarce resource, the goal of this paper is to study how changes to investor's attention costs affect their investment behavior and subsequently crowdfunding performance. We use a multi-method approach to study the question. We first develop an analytical model wherein retail investors with attention costs strategically acquire project information before making investment decisions. We then conduct comparative static analyses on how changes to investors' attention costs affect their information acquisition, investment decisions, and crowdfunding performance. We finally exploit a novel measure associated with attention costs of retail investors--news pressure--to empirically evaluate the predictions of the analytical model. The results support our model predictions: The rise of investor attention costs may paradoxically improve the performance of a crowdfunding project if average investors hold favorable preferences for the project.

Keywords: Crowdfunding; Attention Economy; News Pressure