On the Use of Probabilistic Uncertain Rewards on Crowdfunding Platforms: The Case of the Lottery

Crowdfunding aims to collect investments from many backers to support a project posted by fundraisers. This study examines how backers respond to the lottery—a type of probabilistic uncertain reward—and how their motivations shape their responses to probabilistic uncertain rewards. Using data collected from a reward-based crowdfunding platform, we find that although the lottery helps to attract a higher number of backers on a crowdfunding project, the lottery also reduces the total money raised by the project and thus the probability of reaching its funding goal. Specifically, although the lottery incentivizes individuals who would otherwise not fund the project to become (small) lottery backers, the lottery also cannibalizes regular prospective rewardees and donors by encouraging them to opt for the (cheaper) lottery option. Second, the effects of the lottery are stronger in the earlier stages of a project’s fundraising cycle. Third, the lottery has larger effects on backers with higher prior tendencies to be donors than rewardees. Notably, from a practical standpoint, our study informs fundraisers on how to design strategies to attract the right type of backers and crowdfunding platform managers on how to leverage the lottery as a type of probabilistic uncertain reward on crowdfunding platforms.