A study released on February 8 by the Hanken School of Economics in Helsinki, Finland, has revealed that projecting a trustworthy image could enhance investor funding in crypto initial coin offerings (ICOs) by a remarkable 95%.
For clarity, ICOs commonly involve raising capital to introduce a new cryptocurrency-related product or service, akin to an initial public offering (IPO).
How Crypto ICO Team Members’ Looks Influence Investor Decisions
Using machine learning techniques, Professor Sinh Toi Moi analyzed the facial features of individuals associated with 5,826 ICOs to explore how these features impact perceived trustworthiness.
The findings indicate that ICOs featuring individuals in the top quintile of trustworthiness raised an average of approximately $2.91 million (95%) more than those in the bottom quintile.
However, the study suggests that investors’ perception of facial trustworthiness might be deceptive, potentially influenced by a behavioral bias known as the halo effect. This psychological tendency leads individuals to form a favorable impression of a person based on specific positive characteristics they possess.
The Downside of Trustworthiness
Despite the apparent positive impact of facial trustworthiness on certain members of the studied crypto ICOs, it did not consistently result in positive outcomes for investors.
The study found that facial trustworthiness is negatively linked to post-ICO token cumulative returns, encompassing factors such as survival, listing on exchanges, employment, and code development activity. This correlation suggests that investors who overestimated the value of crypto ICOs during initial fundraising stages may seek to offload their tokens and reverse their overinvestments.
Professor Toi Moi asserts that his research aligns with previous psychological studies indicating that investors may be susceptible to behavioral biases and that facial impressions can be misleading.
The Less Information, The Better
The study, among the first to uncover individual investor bias across the crypto ICO market, also highlighted that individual investors might compensate for their lack of understanding of certain technical aspects related to ICOs by relying on more accessible information – in this case, the perceived trustworthiness of ICO members based on their facial characteristics.
“Further analysis indicates that the impact of facial trustworthiness is more pronounced when ICOs provide limited code information on GitHub accounts or present more intricate white papers,” the study states. “This outcome aligns with prior research and suggests that investors place greater reliance on facial impressions when they possess limited fundamental information about ICO products.”
While not explicitly addressed within the study, these findings may shed light on why scammers could potentially succeed in raising substantial funds during the crypto ICO period.