What Explains Individual Investors’ Behavior in Private Markets?

We provide an information intervention before the one-pager evaluation task. In addition, we include a mechanism section and a financial literacy section to collect more direct evidence on the underlying mechanisms.

We propose three potential mechanisms to explain why individual investors place little value on VC fund managers’ (GPs’) past track records when evaluating them: 1) Lack of Knowledge Hypothesis: Individual investors may be unaware of performance persistence in the VC industry. 2) Lack of Deal Access Hypothesis: Individual investors may only have access to a special subgroup of funds with weak (or no) performance persistence. 3) Financial Literacy Hypothesis: Individual investors may not understand what TVPI means and therefore cannot assess whether a VC fund outperforms or underperforms based on the provided TVPI information.

Importantly, these mechanisms are not mutually exclusive and may coexist. To separately identify these mechanisms, we first conduct an information survey experiment and then collect additional survey evidence.

In the information survey experiment, we randomly display one of several information treatments to participating individual investors before the one-page evaluation task in study AEARCTR-0011408. Each treatment has a similar length. After the evaluation task, we add a mechanism-question section and a financial-literacy quiz section. Other than these additions (i.e., the information intervention, the mechanism section, and the quiz), everything else is identical to study AEARCTR-0011408.

(Control Group) ``Before the evaluation task, please note that recent research finds that, over both their recent and overall history, VC funds have tended to concentrate the majority of their capital in a relatively small number of sectors, reflecting patterns of specialization and perceived opportunity. Experts expect this concentration to remain a defining feature of the industry in the future.''

(Treatment 1 Group) ``Before the evaluation task, please note that recent research finds strong performance persistence in venture capital funds. A fund in the top 25% has a 45% chance of remaining in the top quartile in its next fund (versus 25% if outcomes were random). Similarly, a fund in the bottom 25% has a 44% chance of staying there. This persistence is much stronger than in public equity markets.''

(Treatment 2 Group) ``Before the evaluation task, please note that in this exercise, you will have access to all types of venture capital funds---including high-quality funds that are usually only available to professional institutional investors. These exclusive funds typically have access to the most attractive and competitive deals.''

The additional survey materials are provided in the pre-registration plan.

2025-09-08

2025-10-31

Participants' investment interest ratings of the one pager.

The outcome is directly collected and observed from the experiment.

Participants' mechanism ratings of the one pager.

The outcome is directly collected and observed from the experiment.

We randomly display one of three pieces of information to participating investors and observe how their evaluation criteria change in the subsequent task. Details are provided in the pre-registration plan.

This experiment is exempt from IRB approval because we do not collect or directly observe participants’ identities.

In the information survey experiment, we randomly display one of several information treatments to participating individual investors before the one-page evaluation task in study AEARCTR-0011408. Each treatment has a similar length. After the evaluation task, we add a mechanism-question section and a financial-literacy quiz section. Other than these additions (i.e., the information intervention, the mechanism section, and the quiz), everything else is identical to study AEARCTR-0011408.

(Control Group) ``Before the evaluation task, please note that recent research finds that, over both their recent and overall history, VC funds have tended to concentrate the majority of their capital in a relatively small number of sectors, reflecting patterns of specialization and perceived opportunity. Experts expect this concentration to remain a defining feature of the industry in the future.''

(Treatment 1 Group) ``Before the evaluation task, please note that recent research finds strong performance persistence in venture capital funds. A fund in the top 25% has a 45% chance of remaining in the top quartile in its next fund (versus 25% if outcomes were random). Similarly, a fund in the bottom 25% has a 44% chance of staying there. This persistence is much stronger than in public equity markets.''

(Treatment 2 Group) ``Before the evaluation task, please note that in this exercise, you will have access to all types of venture capital funds---including high-quality funds that are usually only available to professional institutional investors. These exclusive funds typically have access to the most attractive and competitive deals.''

The additional survey materials are provided in the pre-registration plan.

randomization implemented on the online Qualtrics platform

individual investor

No

600 investors

600 investors

200 investors in the control group; 200 investors in the treatment 1 group; 200 investors in the treatment 2 group

We assume SD = 9, Δ = 3, α=0.05, power=90% for continuous variable outcome, then we need about 190 participants per group and need about 570 participants in total.