Network vs market relations: The effect of friends in crowdfunding

Research output: Chapter in Book/Report/Conference proceedingConference contribution

6 Citations (Scopus)

Abstract

Crowds offer a new form of efficacious collective decision making, yet knowledge about the mechanisms by which they achieve superior outcomes remains nascent. It has been suggested that crowds work best with market-like relationships when individuals make independent decisions and possess dissimilar information. By contrast, sociological discussions of markets argue that risky decisions are mitigated by network relations that embed economic transactions in social ties that promote trustworthiness and reciprocity. To investigate the role of networks within crowds and their performance effects, we examined the complete record of financial lending decisions on Prosper.com, 1/2006-3/2012, the first U.S. crowdfunding platform and a chief gateway to capital for entrepreneurs and general borrowers that continues to disrupt conventional financial lending structures infusing more than $5.1 billion into the market in 2013. Our study reveals how reciprocity, recurring borrower-lender dyads, and persistent co-lending underpin the dynamics of network lending. Further, we show how network ties influence the evolution of the lending behavior. We find that in the early stage of fundraising, network relations provide larger proportions of loans, typically lending four times more per bid than strangers. They also respond to loan requests on average 59.5% sooner than strangers. The size of the first loan and the time to lending also tend to prompt lending by strangers, suggesting that network relations might move the market, a finding that persists even as fewer lenders dominate more of the market for loans on Prosper. Finally, network relations are associated with greater engagement: when the first loan is underwritten by a friend, 50% of the remaining loans come from friends as well.

Original languageEnglish (US)
Title of host publicationProceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015
EditorsJian Pei, Jie Tang, Fabrizio Silvestri
PublisherAssociation for Computing Machinery, Inc
Pages226-233
Number of pages8
ISBN (Electronic)9781450338547
DOIs
StatePublished - Aug 25 2015
EventIEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015 - Paris, France
Duration: Aug 25 2015Aug 28 2015

Publication series

NameProceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015

Other

OtherIEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015
CountryFrance
CityParis
Period8/25/158/28/15

Fingerprint

Decision making
Economics

Keywords

  • Bidding dynamics
  • Crowds
  • Decisionmaking
  • Emerging markets
  • Networks
  • Peer-to-peer lending

ASJC Scopus subject areas

  • Computer Science Applications
  • Computer Networks and Communications

Cite this

Horvat, E-A., Uparna, J., & Uzzi, B. (2015). Network vs market relations: The effect of friends in crowdfunding. In J. Pei, J. Tang, & F. Silvestri (Eds.), Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015 (pp. 226-233). (Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015). Association for Computing Machinery, Inc. https://doi.org/10.1145/2808797.2808904
Horvat, Emoke-Agnes ; Uparna, Jayaram ; Uzzi, Brian. / Network vs market relations : The effect of friends in crowdfunding. Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015. editor / Jian Pei ; Jie Tang ; Fabrizio Silvestri. Association for Computing Machinery, Inc, 2015. pp. 226-233 (Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015).
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abstract = "Crowds offer a new form of efficacious collective decision making, yet knowledge about the mechanisms by which they achieve superior outcomes remains nascent. It has been suggested that crowds work best with market-like relationships when individuals make independent decisions and possess dissimilar information. By contrast, sociological discussions of markets argue that risky decisions are mitigated by network relations that embed economic transactions in social ties that promote trustworthiness and reciprocity. To investigate the role of networks within crowds and their performance effects, we examined the complete record of financial lending decisions on Prosper.com, 1/2006-3/2012, the first U.S. crowdfunding platform and a chief gateway to capital for entrepreneurs and general borrowers that continues to disrupt conventional financial lending structures infusing more than $5.1 billion into the market in 2013. Our study reveals how reciprocity, recurring borrower-lender dyads, and persistent co-lending underpin the dynamics of network lending. Further, we show how network ties influence the evolution of the lending behavior. We find that in the early stage of fundraising, network relations provide larger proportions of loans, typically lending four times more per bid than strangers. They also respond to loan requests on average 59.5{\%} sooner than strangers. The size of the first loan and the time to lending also tend to prompt lending by strangers, suggesting that network relations might move the market, a finding that persists even as fewer lenders dominate more of the market for loans on Prosper. Finally, network relations are associated with greater engagement: when the first loan is underwritten by a friend, 50{\%} of the remaining loans come from friends as well.",
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Horvat, E-A, Uparna, J & Uzzi, B 2015, Network vs market relations: The effect of friends in crowdfunding. in J Pei, J Tang & F Silvestri (eds), Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015. Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015, Association for Computing Machinery, Inc, pp. 226-233, IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015, Paris, France, 8/25/15. https://doi.org/10.1145/2808797.2808904

Network vs market relations : The effect of friends in crowdfunding. / Horvat, Emoke-Agnes; Uparna, Jayaram; Uzzi, Brian.

Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015. ed. / Jian Pei; Jie Tang; Fabrizio Silvestri. Association for Computing Machinery, Inc, 2015. p. 226-233 (Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015).

Research output: Chapter in Book/Report/Conference proceedingConference contribution

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N2 - Crowds offer a new form of efficacious collective decision making, yet knowledge about the mechanisms by which they achieve superior outcomes remains nascent. It has been suggested that crowds work best with market-like relationships when individuals make independent decisions and possess dissimilar information. By contrast, sociological discussions of markets argue that risky decisions are mitigated by network relations that embed economic transactions in social ties that promote trustworthiness and reciprocity. To investigate the role of networks within crowds and their performance effects, we examined the complete record of financial lending decisions on Prosper.com, 1/2006-3/2012, the first U.S. crowdfunding platform and a chief gateway to capital for entrepreneurs and general borrowers that continues to disrupt conventional financial lending structures infusing more than $5.1 billion into the market in 2013. Our study reveals how reciprocity, recurring borrower-lender dyads, and persistent co-lending underpin the dynamics of network lending. Further, we show how network ties influence the evolution of the lending behavior. We find that in the early stage of fundraising, network relations provide larger proportions of loans, typically lending four times more per bid than strangers. They also respond to loan requests on average 59.5% sooner than strangers. The size of the first loan and the time to lending also tend to prompt lending by strangers, suggesting that network relations might move the market, a finding that persists even as fewer lenders dominate more of the market for loans on Prosper. Finally, network relations are associated with greater engagement: when the first loan is underwritten by a friend, 50% of the remaining loans come from friends as well.

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Horvat E-A, Uparna J, Uzzi B. Network vs market relations: The effect of friends in crowdfunding. In Pei J, Tang J, Silvestri F, editors, Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015. Association for Computing Machinery, Inc. 2015. p. 226-233. (Proceedings of the 2015 IEEE/ACM International Conference on Advances in Social Networks Analysis and Mining, ASONAM 2015). https://doi.org/10.1145/2808797.2808904