Rational Herding in Reward-Based Crowdfunding: An MTurk Experiment

Irene Comeig, Ernesto Mesa-Vázquez, Pau Sendra-Pons and Amparo Urbano
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Ernesto Mesa-Vázquez: Department of Economic Analysis and ERI-CES, University of Valencia, Avenida de los Naranjos, s/n, 46022 Valencia, Spain
Pau Sendra-Pons: Department of Corporate Finance, University of Valencia, Avenida de los Naranjos, s/n, 46022 Valencia, Spain

Sustainability, 2020, vol. 12, issue 23, 1-21

Abstract: Crowdfunding is gaining popularity as a way of financing social sustainable initiatives. We performed a controlled economic experiment in MTurk by simulating a crowdfunding platform and developed a theoretical model that rationalizes herding behavior. The experiment was designed to test and quantify the causal effects of revealing specific information to prospective backers: (i) the number of early contributors already financing the project and (ii) positive opinions of other backers versus those of experts. The results show that early contributions to the campaign and positive opinions of peers act as a reinforcing signal to potential backers and affect backers’ beliefs about the probability of success, increasing contributions to the campaign. Furthermore, we show that herding is rational and set expectations on when we should observe rational herding and when not. The theoretical model captures the rational herding, which may be the main information aggregation path in reward-based crowdfunding platforms, and can help managers increase the likelihood of success in crowdfunding campaigns.

Keywords: crowdfunding experiments; consumer behavior; peer effects; rational herding; sharing economy; new management strategies; sustainable projects (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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