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

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 significant 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 crowdfunding can play an important role in complementing expert decisions, particularly in sectors where the crowds are end users, by allowing projects the option to receive multiple evaluations and thereby lowering the incidence of "false negatives." *[email protected] and [email protected] Authorship is alphabetical; both authors contributed equally in developing this paper. We are grateful to Xiang Ao, Ajay Agrawal, Teresa Amabile, Ronnie Chatterji, Jing Chen, Chuck Eesley, Avi Goldfarb, Brent Goldfarb, Mukti Khaire, Josh Lerner, Matt Marx, Matthew Rhodes-Kropf, Antoinette Schoar and Tavneet Suri for helpful conversations and feedback, and to the participants of the Economics of Entrepreneurship and Innovation Conference at Queens School of Business. We thank John Galvin and Andrew Marder at HBS for their help in implementing the survey. We would also like to thank the editors and our three anonymous reviewers for their very helpful comments. Support was provided by the Kauffman Foundation’s Junior Faculty Fellowship and Harvard Business School’s Division of Research and Faculty Development for financial support.