Investors’ Information Avoidance Behavior in Securities-Based Crowdfunding

Abstract

We conduct two experiments in the securities-based crowdfunding setting to investigate whether, for psychological reasons, some investors avoid accounting information they could and would use in their decision making. We find in our first experiment nonprofessional investors more likely to anticipate psychological discomfort from evaluating financial information are less likely to acquire a potential investment’s financial statements. Despite this lack of due diligence in the high-risk crowdfunding environment, we find investors who avoid (versus acquire) a company’s financial statements are more willing to invest in its offering. Our second experiment demonstrates investors randomly assigned to not having (versus having) the same financial statements continue to be more willing to invest, suggesting even investors who would choose to avoid financial statements would use them if they were displayed prominently. Our results provide a behavioral explanation for investors’ documented underuse of accounting information and can inform regulators as they revise crowdfunding regulations.