Crowdfunding as Gambling: Evidence from Repeated Natural Experiments

We explore whether sensation-seeking, a personality trait that involves risk-taking for novelty and thrill, is one of the underlying motivations for participating in peer-to-peer lending crowdfunding markets. To empirically substantiate this argument, we test whether individuals participating in Prosper, one of the largest lending markets in the U.S., reduce their lending activity when gambling in the form of playing the multistate lotteries Powerball and Mega Millions becomes more attractive. Lottery is a repeated natural experiment: Lottery jackpots are randomly won and a series of draws with no winners form large jackpots. We find that the thrill of winning a large jackpot lottery, perhaps intensified by advertising and media coverage around this event, fulfills some lenders’ desire of sensation-seeking and substitutes participating in Prosper, decreasing their lending activity. We discuss implications for lenders and borrowers, as well as platform organizers and policy makers.