A finance professor from Finland’s Hanken School of Economics recently unveiled a study in preprint that suggests initial coin offerings (ICOs) are more successful in fundraising when their team members are perceived as more trustworthy based on their appearances.
Titled “The Value of a Smile,” the research by Professor Sinh Thoi Mai found that ICOs with team photos deemed highly trustworthy could secure up to 95% more in investments compared to those rated low on the trustworthiness scale.
The findings reveal a significant link between the perceived trustworthiness of faces and the amount of funding received, with a notable difference of around $2.91 million (95%) in the average funds raised between ICOs in the highest and lowest quintiles of trustworthiness rankings. Importantly, this sense of trustworthiness does not have any bearing on the performance of the ICO after the fundraising phase.
Professor Mai gathered data on 5,826 ICOs from a variety of sources, which together raised about $24 billion. He analyzed the facial images in the ICOs’ investment materials, assessing their trustworthiness based on criteria from prior studies.
The findings indicated that ICOs with higher trustworthiness scores generally attracted more funding. However, this initial attraction did not necessarily extend beyond the ICO stage.
Mai noted a negative correlation between facial trustworthiness and post-ICO performance, suggesting that tokens associated with highly trustworthy faces tend to underperform in the three months following their listing on exchanges. This pattern suggests investors might overvalue ICOs based on team member images, leading to rapid sell-offs to mitigate losses or capitalize on initial overinvestments.
The research also highlighted that the importance of facial trustworthiness increases in situations where there is less available information, such as fewer code uploads on GitHub or more intricate white papers. This implies that investors, especially those with limited technical expertise, might rely more on perceived trustworthiness, like a convincing smile, as a cue for investment decisions.
Despite the lack of scientific evidence linking smiling faces to actual trustworthiness, the study confirms that people tend to associate smiles with trustworthiness.