Cognitive sources of liability of foreignness in crowdsourcing creative work

Abstract

Is there a liability of foreignness in online crowdsourcing contests for creative work? Digitalization mitigates physical orthodox transaction-based frictions and is therefore expected to reduce the liability of foreignness. However, for creative work sourced digitally across borders, due to the decoupling of the locus of creation from the locus of selection and due to the cognitive nature of creative tasks, we suggest that frictions continue to arise from foreign solvers’ cognitive home biases in creative task generation and from solution-seeker firm managers’ cognitive home biases in creative task selection. These biases manifest as LOF, reducing the likelihood of foreign solvers’ work being selected as winners in online crowdsourcing contests. Furthermore, we argue that as foreign solvers gain both breadth and depth of international experience in prior online contests, and observe host peers in a live contest, the effect of the liability of foreignness is reduced due to the conceptual expansion of solvers’ creative consideration sets. Similarly, the seeker firm’s cognitive openness in selection arising from its being in a technology industry or being a physically international firm reduces the liability’s negative effect on solvers’ success. Our conditional logit estimation with multiway fixed-effects using 558,504 contest-solver observations from 13,993 solution-seeker firms in 102 countries and 11,497 solvers in 124 countries on an online platform broadly supports our hypotheses, suggesting that there are both demand-side and supply-side cognitive sources of LOF even in unblind online crowdsourcing contests.