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February 21, 2019 at 4:20 pm

Vancouver Co-Authors Article on Equity Crowdfunding Decisions and Self-Efficacy

Dr. Jeffrey Vancouver, portrait

Dr. Jeffrey Vancouverpsychologt

Dr. Jeffrey B. Vancouver co-authored “Out of control or right on the money? Funder self-efficacy and crowd bias in equity crowdfunding” in the Journal of Business Venturing.

The work also was featured in Science Magazine in an article headlined “Believing in yourself can backfire when investing in equity crowdfunded ventures.”

“In a new paper, researchers reveal that amateur investors with an inflated view of their investing acumen are three times more likely to make poor decisions when investing in equity crowdfunded opportunities,” according to the news release.

Vancouver is the Byham Chair in Industrial/Organizational Psychology at Ohio University. The paper’s co-authors are Regan Stevenson of Indiana University’s Kelley School of Business, Michael Ciuchta of the University of Massachusetts, and Chaim Letwin and Jenni Dinger of the Suffolk University.

The key findings of their article:

  • Self-efficacy negatively relates to funder decisions via funder effort.
  • Self-efficacy induces crowd bias in amateur funders.

Abstract: Our findings extend the entrepreneurship literature by highlighting the mechanism through which self-efficacy can hinder rather than enhance performance in entrepreneurial settings. Using two complementary experimental studies and a third quasi-experimental field study on equity crowdfunding decisions, we demonstrate that self-efficacy is negatively related to decision-making performance. This relationship is mediated by reduced searching effort. Our research also indicates that high self-efficacy funders tend to exhibit a “crowd bias” whereby they over-weight the opinions of the crowd, increasing the likelihood that they will fund poor quality ventures when such ventures are favored by the crowd. We introduce the term crowd bias and explore its effects, establishing that social indicators in the form of crowd cues can exasperate the negative effects of self-efficacy.

 

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