The Wisdom of the Diverse Crowd(funders)

Crowdfunding platforms aim to democratize entrepreneurial finance by creating ecosystems that elicit the ‘wisdom of crowds’—aggregating the judgments of individual and often amateur funders. However, there is limited evidence on whether crowds can effectively apply their collective wisdom on these platforms. Our study addresses these questions by analyzing a crowdlending platform that connects Western lenders with borrowers in developing countries. We examine whether lenders effectively screen borrowers, identify platform attributes that influence lenders’ screening accuracy, and uncover the underlying mechanisms driving these effects. To achieve this, we exploit interventions by platform administrators that allow us to observe the counterfactual repayment performance of loans that failed to attract sufficient funding. Our results indicate that rowdlenders can effectively screen creditworthy borrowers, but only when financial information about borrowers is made available. Lenders’ screening effectiveness diminishes substantially for prosocial loans, as many funders converge on similar, socially motivated decisions. These findings provide novel evidence on crowdlenders' performance, highlighting key trade-offs for crowdfunding platforms and offering actionable insights for their administrators.