Weakness in Numbers: The Risks Investors' Bounded Rationality and Cognitive Biases Pose to the U.S. Securities Crowdfunding Market

Increased communication facilitated by the rise of the Internet has developed the necessary infrastructure to gather a virtual "crowd" This has permitted crowdfunding, which was previously a method of offering credit to low-income families, to thrive and adapt to new uses.

Rewards-based crowdfunding has developed as a method for entrepreneurs to gauge the viability of proposed businesses prior to launching a venture."Under this crowdfunding model, the crowd contributed money to entrepreneurs in return for a non-monetary reward. However, when some crowdfunded ventures reaped immense returns through acquisitions by established companies, the crowd was dismayed to be excluded from these rewards.This helped spur a shift in securities law. Although historically only wealthy or experienced accredited investors could participate in funding start-up businesses in return for equity, the passage of the Jumpstart Our Business Startups (JOBS) Act in 2012 authorized retail securities crowdfunding and granted ordinary Americans the ability to "invest in entrepreneurs they believe in and to finally reap monetary rewards in return for their support.

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