What is the Crowd Worth? The Role of Social Influence in Crowdfunding

• In Event: 034 - Section on Economic Sociology Paper Session. Money, Credit and Society

Abstract

We provide evidence that social influence affects funding patterns in crowdfunding. In other words, the size of previous contributions affects subsequent funding decisions. The canonical model of social learning suggests that individuals learn from the actions of previous individuals, and that actions converge over time. However, this has been difficult to establish empirically. The study of social influence is plagued with identification problems such as homophily and correlated shocks. In order to estimate the effect of social influence, we exploit a feature of the Indiegogo crowdfunding platform whereby only a set number of previous contributors can be easily seen and every new contributor displaces the oldest one in the set. We find that contributors set their contribution in the direction of social information, increasing their contribution when the social information is above the running mean, and decreasing their contribution when the social information is below the running mean. We show the social influence effect is only present when there is gender congruency: target contributors are influenced by a previous contribution only when their own gender matches the gender of the previous contributor. If there is gender mismatch, the effect of social influence is reversed, such that contributors change their contribution in the direction opposite of that suggested by social information. This study suggests gender and motivational differences in sensitivity to social influence, and highlights avenues for entrepreneurs and crowdfunding platforms to use social influence in order to harness the power of the crowds.

Authors

• Andreea Daniela Gorbatai, University of California at Berkeley

• Lucy Hu, University of California-Berkeley Haas School of Business