Discussion Paper No. 2
November 2, 2021
A Theory of Crowdfunding
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Abstract:
Crowdfunding provides innovation in enabling entrepreneurs to contract with consumers before investment. Under aggregate demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard and private cost in- formation threatens this benefit. Crowdfunding’s after-markets enable consumers to actively implement deferred payments and thereby manage moral hazard. Popular crowdfunding platforms offer schemes that allow consumers to do so through con- ditional pledging behavior. Efficiency is sustainable only if expected returns exceed an agency cost associated with the entrepreneurial incentive problems. By reducing demand uncertainty, crowdfunding promotes welfare and complements traditional entrepreneurial financing, which focuses on controlling moral hazard.
Keywords:
crowdfunding; entrepreneurship; moral hazard; demand uncertainty;
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Discussion Paper No. 1
January 7, 2017
You Owe Me
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Abstract:
In business and politics, gifts are often aimed at influencing the recipient at the expense of third parties. In an experimental study, which removes informational and incentive confounds, subjects strongly respond to small gifts even though they understand the gift giver’s intention. Our findings question existing models of social preferences. They point to anthropological and sociological theories about gifts creating an obligation to reciprocate. We capture these effects in a simple extension of existing models. We show that common policy responses (disclosure, size limits) may be ineffective, consistent with our model. Financial incentives are effective but can backfire.
Keywords:
gift exchange; externalities; lobbyism; corruption; reciprocity; social preferences;
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Discussion Paper No. 203
October 22, 2021
Belief Updating: Does the 'Good-News, Bad-News' Asymmetry Extend to Purely Financial Domains?
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Abstract:
Bayes' statistical rule remains the status quo for modeling belief updating in both normative and descriptive models of behavior under uncertainty. Some recent research has questioned the use of Bayes' rule in descriptive models of behavior, presenting evidence that people overweight 'good news' relative to 'bad news' when updating ego-relevant beliefs. In this paper, we present experimental evidence testing whether this 'good-news, bad-news' effect is present in a financial decision making context (i.e. a domain that is important for understanding much economic decision making). We find no evidence of asymmetric updating in this domain. In contrast, in our experiment, belief updating is close to the Bayesian benchmark on average. However, we show that this average behavior masks substantial heterogeneity in individual updating. We find no evidence in support of a sizeable subgroup of asymmetric updators.
Keywords:
economic experiments; bayes' rule; belief updating; belief measurement; proper scoring rule; motivated beliefs;
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