Learning by Doing with Asymmetric Information: Evidence from Prosper.Com

55 Pages Posted: 7 Mar 2011 Last revised: 20 Jan 2025

See all articles by Seth Freedman

Seth Freedman

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Ginger Zhe Jin

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 2011

Abstract

Using peer-to-peer (P2P) lending as an example, we show that learning by doing plays an important role in alleviating the information asymmetry between market players. Although the P2P platform (Prosper.com) discloses part of borrowers' credit histories, lenders face serious information problems because the market is new and subject to adverse selection relative to offline markets. We find that early lenders did not fully understand the market risk but lender learning is effective in reducing the risk over time. As a result, the market excludes more and more sub-prime borrowers and evolves towards the population served by traditional credit markets.

Suggested Citation

Freedman, Seth and Jin, Ginger Zhe, Learning by Doing with Asymmetric Information: Evidence from Prosper.Com (March 2011). NBER Working Paper No. w16855, Available at SSRN: https://ssrn.com/abstract=1776790

Seth Freedman (Contact Author)

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Ginger Zhe Jin

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3484 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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