Revealed Wisdom of the Crowd: Informational Value of Bids

Traditional studies on the wisdom of the crowd focus on member characteristics that are either static (e.g., demographics) or slow to change (e.g., expertise). However, members of a crowd are different not only in terms of who they are but also what they do when faced with different opportunities. Using data from online debt crowdfunding, we propose and find significant informational value in the heterogeneity of observable actions of crowd members. We quantify investor behavior in two ways: bid size and bid timing. We find that loans funded with fewer but larger bids are less likely to default than those funded with a larger number of smaller bids. For loans with similar bid-amount distributions, those receiving larger bids earlier in the bidding process are less likely to default. These features also help improve the predictive performance of loan default models. Importantly, these features are easily accessible and less subject to privacy concerns. Our findings point to a novel direction of extracting wisdom of the crowd, new methods of evaluating loan quality in secondary markets, and have implications for the design of online crowdsourcing platforms in general.