Wisdom of the crowds

The crowd is pretty good at detecting fraud and finding projects with signals of quality. With information openly shared online, the wisdom of the crowds does act to curb fraud, observers note. According Wharton management professor Ethan Mollick fraud rarely occurs in crowdfunding even without enforcement: Less than 1% of funds and 4% of the projects he studied showed signs of fraud. With so many people looking at a business, “if something’s suspicious, somebody raises an alarm,” he states. Think of a piece of open-source software. “With enough eyes, all (computer) bugs” tend to be discovered quickly, he adds.

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