September 26th, 2018
Never mind the $55,000 potato salad, crowdfunding picks winners
The Globe and Mail | HIROKO TABUCHI | August 19, 2014
A catchy idea, no matter how irrelevant, is seemingly all an aspiring entrepreneur needs these days to raise money on sites like Kickstarter - a point driven home this summer when Zack Brown, a developer in Columbus, Ohio, raised $55,492 to make a potato salad.
Do crowds - driven by a herd mentality, euphoria or sheer silliness - gravitate toward funding seemingly irrelevant ideas? Or do crowds make rational funding decisions that can identify promising projects better than venture capital investors and other traditional gatekeepers? Researchers are examining a growing body of data about crowdfunding to try to answer these questions.
In a recent academic study, researchers tracked 120 theater-related campaigns that aimed to raise at least $10,000 on Kickstarter between May 2009 and June 2012. The researchers also asked 30 professionals with experience in evaluating applications for grant-making organizations like the National Endowment for the Arts to evaluate those campaigns.
They found that crowds and experts mostly agreed on what made promising theater. When they disagreed, crowds were generally more willing to fund projects. Yet projects picked only by the crowd were as likely to deliver on budget - and achieve commercial success and positive critical acclaim - as projects favored by experts. The crowd, in effect, chose strong projects that experts might not have recognized.
“The crowd is often thought as being crazy. There was a sense that they would back musicals about Internet cats, and experts would back serious work,” said Ethan Mollick, an assistant professor of management at the Wharton School of the University of Pennsylvania. “It turns out the crowd does consider the quality of projects and outcomes pretty well.”
One reason crowds might do as well, or even better, at choosing promising projects is that they tend to be diverse and might avoid, for example, gender biases.
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