Wisdom or Madness? Comparing Crowds with Expert Evaluation in Funding the Arts

by Ethan R. Mollick & Ramana Nanda

Overview — In fields as diverse as technology entrepreneurship and the arts, crowds of interested stakeholders are increasingly responsible for deciding which innovations to fund, a privilege that was previously reserved for a few experts, such as venture capitalists and grant-making bodies. Despite the growing role of crowds in making decisions once left to experts, however, we know little about how crowds and experts may differ in their ability to judge projects, or even whether crowd decision-making is based on any rational criteria at all. Drawing on a panel of national experts and data from the crowd funding platform Kickstarter, this study offers the first detailed comparison of crowd and expert judgment. There are three main findings. First, on average, there is a remarkable degree of congruence between the realized funding decisions by crowds and the evaluation of those same projects by experts. Second, there seems to be an "art" to raising money from crowds, one that may be systematically different from that of raising money from experts. Third, crowd funded projects are equally likely to have delivered on budget, result in organizations that continue to operate, and be successful in other ways. Overall, crowd funding appears to allow projects the option to receive multiple evaluations and reach out to receptive communities that may not otherwise be represented by experts. Key concepts include:

Crowds and experts make similar funding decisions.
Where crowds and experts disagree, it is far more likely to be a case where the crowd is willing to fund projects that experts may not.
Despite this, the findings show no quantitative or qualitative differences between projects funded by the crowd alone and those that were selected by both the crowd and experts.

Author Abstract

In fields as diverse as technology entrepreneurship and the arts, crowds of interested stakeholders are increasingly responsible for deciding which innovations to fund, a privilege that was previously reserved for a few experts, such as venture capitalists and grant‐making bodies. Little is known about the degree to which the crowd differs from experts in judging which ideas to fund, and, indeed, whether the crowd is even rational in making funding decisions. Drawing on a panel of national experts and comprehensive data from the largest crowdfunding site, we examine funding decisions for proposed theater projects, a category where expert and crowd preferences might be expected to differ greatly. We instead find substantial agreement between the funding decisions of crowds and experts. Where crowds and experts disagree, it is far more likely to be a case where the crowd is willing to fund projects that experts may not. Examining the outcomes of these projects, we find no quantitative or qualitative differences between projects funded by the crowd alone and those that were selected by both the crowd and experts. Our findings suggest that the democratization of entry that is facilitated by the crowdfunding has the potential to lower the incidence of "false negatives," by allowing projects the option to receive multiple evaluations and reach out to receptive communities that may not otherwise be represented by experts.