Tuesday, April 3, 2012


This is an example of a socio-economic phenomenon if there ever was one. During Chris's presentation, the most fascinating thing to me was the psychology behind donating. I'll give a quarter to a homeless guy every now and again if he holds the door for me, but that's different than just forking over thousands of dollars to strangers with questionable ideas and no intent to pay
you back.

The concept of altruism does not factor into the equations illustrating the flow of capital between markets in capitalism. All the theories attempting to explain an individual's motivation to give money to one of these sights are only that- theories, all based in psychological speculation. Economic models rely on certain accepted realities to operate. One of these is that all consumers in the given market are reasonable, rational people, who allocate their disposable income for the sole purpose of maximizing their marginal utility. And in this case, people are not doing that. It's similar to when consumers make impulse purchases, compulsive purchases (like drugs or alcohol), hell, even drunken purchases on ebay, which I'm guilty of several times over. These result from hiccups in the human condition economic models cannot quantify, and therefore, cannot account for.

This is one of the reasons why the government is quick to jump in. Besides the fact this online crowdfunding forum presents problems for tax assessment and collection, investment regulation, and ponzi schemes or loan sharks, it's simply difficult to understand. The establishment is never quick to accept novel or game-changing ideas. The bottom line is, with the current administration striving to improve conditions for entrepreneurs and small businesses, they will more than likely look for ways to accommodate these forums rather than supress them, provided they can find an unobtrusive way to regulate them. While it may not coincide with my personal ideal of capitalism, it does help people out who need it, which is pretty cool.

1 comment:

  1. Rob,

    I am with you 100 percent. Even as I researched crowd funding and looked into the various theories as to why certain ideas were able to generate so much money with no guarantee of a return of any kind, I couldn't get my head around why this fundraising seemed to work. The reason why I chose to focus on altruism—which generated a little discussion during class—is because the basic crowd funding model is based on charity. Sure, a contribution to a kickstarter campaign gets the contributor a nice trinket or a pre-order, but I think the basic drive is more in line with the altruistic idea of "I like this and I want to help you realize it." I don't think the product you get for your donation is what drives people to contribute.

    As far as economic theory goes, as you know, I'm a novice at best, but I think the success of crowd funding may signal a shift in the way certain individuals or groups define or evaluate marginal utility—which may explain why it is most successful among artists and other creative types perhaps more inclined to creative returns than financial ones. I don't know, though. Like you said, it's just a theory. I'd imagine economics majors could have a field day trying to figure it out.