Trust and Lending: An Experimental Study
44 Pages Posted: 5 May 2020 Last revised: 3 Aug 2021
Date Written: October 29, 2020
Abstract
This paper investigates the importance and the determinants of trust in a lending situation using a controlled experiment. We find that communication can facilitate collaboration between lenders and borrowers through three channels of trust: 1) an information channel, 2) a preference channel, and 3) a reciprocity channel. Our results highlight the role of trust in mitigating the moral hazard problem in lending.
Keywords: Behavioral Finance, Trust, Lending, Financial Risks, Banking, Credit Markets, Experimental Economics
JEL Classification: C90, G21, G32, G41
Suggested Citation: Suggested Citation
Hyndman, Kyle B. and Wu, Jiabin and Xiao, Steven Chong, Trust and Lending: An Experimental Study (October 29, 2020). Available at SSRN: https://ssrn.com/abstract=3572430 or http://dx.doi.org/10.2139/ssrn.3572430
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