Crowdfunding with Cognitive Limitations

Abstract

A crowdfunding platform enables project creators to raise funding from a crowd of contributors to develop their projects. An accurate modeling and predication of contributors’ behaviors is critical for a creator to achieve the project success. In this paper, we present a first study on a creator’s optimal crowdfunding campaign parameter choices, considering the contributors’ realistic cognitive limitations. Specffically, we consider a two-stage crowdfunding model: in Stage I a creator determines the project decisions (i.e., price and minimum number of contributors); in Stage II the contributors choose their pledging behaviors (whether to contribute and with what probabilities). We apply the cognitive hierarchy theory to model the cognitive limitations of the contributors, i.e., contributors are grouped based on their cognitive levels which reflect their capabilities of reasoning other contributors’ decisions. Although the project decisions are highly coupled between contributors’ pledging and creator’s revenue maximization, we exploit the monotonic structure of the revenue maximization problem to compute creator’s optimal solutions. We show that contributors with the same valuation exhibit the same pledging behaviors, independent of their cognitive levels (except those at the lowest cognitive levels). This explains the real-world phenomenon that projects either attract few contributors (often under 40% pledging rate) or are oversubscribed.