Don’t Call Crowdfunding “Paying It Forward”

This is a repost from my LinkedIn blog. I will be adding posts that pertain to crowdfunding here on The Crowdfundamentals blog, in case you miss them the first time.

Are you in the habit of describing crowdfunding as a “pay it forward” phenomenon? While generosity among strangers plays a part in the psychology behind why people give—one crowdfunding platform’s name even borrows from the “pay it forward” concept—the science behind the two are different.

I discovered this after reading an op-ed piece in the New York Times several weeks ago entitled “The Science of Paying it Forward.” I fully expected to find research that squared with the phenomenon we have seen in so many successful crowdfunding campaigns. According to the authors, however, when people pay it forward, another type of thinking kicks in.

“We found that receiving and observing generosity can both significantly increase your likelihood of being generous toward a stranger, but that if you observe a high enough level of generosity, your willingness to help suffers — you become a “bystander” who feels that help is no longer needed.”

Hmm. If that were true, why would we see the kind of consistent and stratospherically soaring numbers so many campaigns experience above and beyond their original ask? And this extravagant giving doesn’t just apply to product-based successes like Ouya, in which people continue to give because they want to make a pre-purchase early knowing the price will likely increase later. (I would have used Oculus Rift as an example but better not to go near that can of worms.)

Nor did it apply to the Veronica Mars Project. Rob Thomas was only asking for a mere $2 million and was rewarded with almost $4 million more in return for an opportunity to….see a movie for which Warner Bros stood to benefit. (I still remember staring in stunned silence as I watched the funding numbers ticking higher and higher on my computer screen in real time.)

And what about Karen Klein? That was some vacation her backers were determined to give her.

Seeking clarification, I contacted co-authors Milena Tsvetkova and Michael Macy at Cornell University and asked if they took crowdfunding into consideration when creating the study, noting a reverse phenomenon seemed to be in play. Tsvetkova kindly wrote back right away. She attributed what occurs in a crowdfunding campaign to something called “signalling,” which is decidedly different than paying it forward.

“As more people contribute to a campaign, others perceive this as a signal that the campaign is an important and worthy one.”

That certainly rang true.

As did her follow-up theory:

“It is also possible that the crowdfunding website is setup so that the more people contribute to a campaign, the more likely you are to notice that campaign. This leads to a process of ‘increasing returns,’ which says the more popular something is, the more popular it becomes.”

What’s the upshot here? Though both pay it forward and crowdfunding both induce in us a desire to be generous, the psychological incentives, and the outcome, can be in opposition to each other.

Regardless, it turns out participating in either paying it forward and crowdfunding have one effect in common: both make people happier. Just last week there was yet another op-ed piece that caught my eye and served as a dollop of icing to both theories. It turns out giving stimulates prosperity! According to the piece, spending money on oneself barely moves the needle, while spending money on others causes a significant increase.

“Why? Charitable giving improves what psychologists call “self-efficacy,” one’s belief that one is capable of handling a situation and bringing about a desired outcome. When people give their time or money to a cause they believe in, they become problem solvers. Problem solvers are happier than bystanders and victims of circumstance.”

So whether your desired form of giving is to pump a stranger’s parking meter with quarters or help a bullied bus monitor catch a break, you my friends, are the ultimate winners!

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