A Keynesian Beauty Contest is a voting contest where the most popular entrant wins, but those who picked the most popular entrant are also rewarded. Voters are incentivized to choose not whom they find beautiful, but whom they think other people find beautiful.

Rheingold Beer ran a contest for Miss Rheingold from 1940 to 1965. It got so popular in NYC that Miss Rheingold voters outnumbered those of the Presidential election turnout.

People began placing bets in addition to just voting for a winner. In a Keynesian beauty contest, the winner is not always the most striking, but generally inoffensive.

Other things that are Keynesian beauty contests: The stock market. The Republican nominee. Targets of moral outrage. Unicorns.

Crowdfunding campaigns are just the opposite.

I get frequent requests to back all manner of gadgets/screenplays/iPhone apps on Kickstarter and Indiegogo. I only back crowdfunding campaigns that I expect to fail.

The beauty of crowdfunding campaigns is that your contribution is only collected if the campaign reaches its fundraising goal. You could pledge a million dollars to a Greek Bailout Fund, but if they need 1.6 billion euro to succeed, you can be pretty confident that you’ll get your money back.

It’s like placing a bet, where the payoff is a little bit of Kickstarter karma.

Sometimes I get a massively disappointing email like this:

My theory is that the backwards Keynesian-beauty-contest dynamic is what gives traction to many incredibly stupid crowdfunding campaigns. Potato salad. $13 million dollar cooler. Dog selfie stick.

Dumb herd mentality gets them the rest of the way there.