Nav: Home

Social information from friends, experts could help reduce uncertainty in crowdfunding

February 22, 2017

BINGHAMTON, NY - Social information gathered from friends and experts, depending on the complexity of the product, can decrease uncertainty in crowdfunding campaigns, according to research from Binghamton University, State University of New York.

Popular crowdfunding sites host many projects that are initiated by first-time entrepreneurs for a variety of creative products. In these projects, funders face a unique uncertainty: seller competence uncertainty. Unlike traditional e-commerce, where products are already finished and ready for shipment, in crowdfunded projects the product still needs to be produced. The seller competence uncertainty captures the uncertainty related to the project initiator's ability to finish the product.

When people on crowdfunding sites are presented with an information overload and face ambiguity regarding a project, they tend to follow the decisions of others to differentiate the projects they find legitimate from those that they find illegitimate. Current literature postulates that funders make decisions by following the decisions of the crowd, and this herd behavior leads to less than optimal decisions. Having a mechanism that aids decision-making would be beneficial for the long-term success of crowdfunding sites.

The researchers write that crowdfunding sites can integrate social information from experts and friends to assist decision-making.

"The crowdfunding website can extract information from Facebook, and then your Facebook friends will be notified that you have funded a project," said Surinder Singh Kahai, associate professor in Binghamton University's School of Management, suggesting possible ways that this information could be leveraged. "Information can also be extracted from sources such as LinkedIn. That way, if you are an engineer funding a computer- or hardware-related project, the crowdfunding platform can give you expertise level."

Binghamton University researchers Kahai and Ali Alper Yayla, along with Yu Lei from SUNY College at Old Westbury, recruited subjects through Amazon Mechanical Turk, a crowdsourcing internet marketplace, to examine the influence of different reference groups (experts, friends and family, the crowd) at different product complexities. The researchers conducted a controlled lab experiment, designing several webpages to mimic a crowdfunding environment and incorporate the influence of different reference groups. By proposing both implicit and explicit social information, they were able to identify which type of information each reference group provided during the decision-making process. The researchers found that under low product complexity, funders needed more implicit information, and they followed friends over experts and crowd to make pledging decisions. On the other hand, under high product complexity, people needed more explicit information, and they rationalized their pledging behaviors by following experts over crowd and friends.

"We have to look at external sources, specifically reference groups, which include our friends and family, or experts who have expertise in a certain area and the general population," said Yayla. "When I have to make a decision about which mechanic to bring my car to, I should probably listen to the experts, but instead I listen to my friends or I use a website such as Yelp to read reviews."

The paper, "Guiding the Herd: The Effect of Reference Groups in Crowdfunding Decision Making," was presented at the 50th Hawaii International Conference on System Sciences.

Binghamton University

Related Decisions Articles:

Which COVID-19 models should we use to make policy decisions?
A new process to harness multiple disease models for outbreak management has been developed by an international team of researchers.
For complex decisions, narrow them down to two
When choosing between multiple alternatives, people usually focus their attention on the two most promising options.
Fungal decisions can affect climate
Research shows fungi may slow climate change by storing more carbon.
How decisions unfold in a zebrafish brain
Researchers were able to track the activity of each neuron in the entire brain of zebrafish larvae and reconstruct the unfolding of neuronal events as the animals repeatedly made 'left or right' choices in a behavioral experiment.
Best of the best: Who makes the most accurate decisions in expert groups?
New method predicts accuracy on the basis of similarity.
How do brains remember decisions?
Mammal brains -- including those of humans -- store and recall impressive amounts of information based on our good and bad decisions and interactions in an ever-changing world.
How we make complex decisions
MIT neuroscientists have identified a brain circuit that helps break complex decisions down into smaller pieces.
Opposites attract and, together, they can make surprisingly gratifying decisions
Little is known about how consumers make decisions together. A new study by researchers from Boston College, Georgia Tech and Washington State University finds pairs with opposing interpersonal orientations -- the selfish versus the altruistic -- can reach amicable decisions about what to watch on TV, or where to eat, for example.
Group decisions: When more information isn't necessarily better
Modular -- or cliquey -- group structure isolates the flow of communication between individuals, which might seem counterproductive to survival.
How do we make moral decisions?
When it comes to making moral decisions, we often think of the golden rule: do unto others as you would have them do unto you.
More Decisions News and Decisions Current Events

Trending Science News

Current Coronavirus (COVID-19) News

Top Science Podcasts

We have hand picked the top science podcasts of 2020.
Now Playing: TED Radio Hour

Processing The Pandemic
Between the pandemic and America's reckoning with racism and police brutality, many of us are anxious, angry, and depressed. This hour, TED Fellow and writer Laurel Braitman helps us process it all.
Now Playing: Science for the People

#568 Poker Face Psychology
Anyone who's seen pop culture depictions of poker might think statistics and math is the only way to get ahead. But no, there's psychology too. Author Maria Konnikova took her Ph.D. in psychology to the poker table, and turned out to be good. So good, she went pro in poker, and learned all about her own biases on the way. We're talking about her new book "The Biggest Bluff: How I Learned to Pay Attention, Master Myself, and Win".
Now Playing: Radiolab

Invisible Allies
As scientists have been scrambling to find new and better ways to treat covid-19, they've come across some unexpected allies. Invisible and primordial, these protectors have been with us all along. And they just might help us to better weather this viral storm. To kick things off, we travel through time from a homeless shelter to a military hospital, pondering the pandemic-fighting power of the sun. And then, we dive deep into the periodic table to look at how a simple element might actually be a microbe's biggest foe. This episode was reported by Simon Adler and Molly Webster, and produced by Annie McEwen and Pat Walters. Support Radiolab today at