Financial literacy in for-profit vs pro-social peer-to-peer lending

Laura Gonzalez

13 citations0/0 files storedManagerial Finance

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FinTech, Crowdfunding, Digital Finance Financial Literacy, Pension, Retirement Analysis Financial Literacy and Behavior

Abstract

Purpose Peer-to-peer (P2P) lending facilitates direct online lending and aims to provide financial inclusion and investment returns. Lender goals range from for-profit to pro-social and objective information is limited, which highlights the need to examine heuristics. Design/methodology/approach This study examines 1,347 lending decisions by finance students on a mock P2P site. Testimonials were used to randomly condition the financially literate lenders towards for-profit or pro-social decision-making. Each investor evaluated three loans. The three loan applications were identical except for a female or male headshot (vs an icon) and random reports of 50% funding for the female or male loan in 3 days (vs 11 days for opposite gender and 7 for icon). Previous research surveys students on a mock platform (Gonzalez, 2020) and reports similar heuristics and lifelike decisions in student and general population samples (Gonzalez and Komarova, 2014). Findings Lenders randomly conditioned towards pro-social lending state lower trust in borrowers. However, pro-social investors state lower risk in P2P lending and higher financial literacy. Second, pro-social investors are more confident when lending to borrowers highly trusted by other lenders, especially if the popular loan applicant is female. Third, pro-social conditioning increases lending to male applicants when the popular loan applicant is female. Fourth, pro-social investors who have experienced financial trauma have greater confidence in bad loan recovery. Originality/value This is the first study of heuristics in pro-social vs for-profit P2P lending. In addition, it shows that testimonials can effectively condition lending goals and affect trust and risk perceptions.

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References

2014Financial Literacy, Financial Education, and Downstream Financial Behaviors 2010Financial Literacy among the Young 2010Having less, giving more: The influence of social class on prosocial behavior.2012Judging Borrowers by the Company They Keep: Friendship Networks and Information Asymmetry in Online Peer-to-Peer Lending 1996The Evaluability Hypothesis: An Explanation for Preference Reversals between Joint and Separate Evaluations of Alternatives 2012Trust and Credit: The Role of Appearance in Peer-to-peer Lending 2014Keeping It Simple: Financial Literacy and Rules of Thumb 2015Screening Peers Softly: Inferring the Quality of Small Borrowers

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