Tell Me a Good Story and I May Lend You My Money: The Role of Narratives in Peer-to-Peer Lending Decisions

44 Pages Posted: 15 May 2011 Last revised: 17 Aug 2011

See all articles by Michal Herzenstein

Michal Herzenstein

University of Delaware

Scott Sonenshein

Rice University

Utpal M. Dholakia

Rice University - Jesse H. Jones Graduate School of Business

Date Written: May 13, 2011

Abstract

We examine the role of identity claims constructed in narratives by borrowers in influencing lender decision making regarding unsecured personal loans. We study whether the number of identity claims and their content influence decisions of lenders and whether they predict longer-term performance of funded loans. Using data from the peer-to-peer lending website Prosper.com, we find that unverifiable information affects lending decisions above and beyond objective, verifiable information. Specifically, as the number of identity claims in narratives increases, so does loan funding but loan performance suffers, because these borrowers are less likely to pay back. In addition, identity content plays an important role. Identities about being trustworthy or successful are associated with increased loan funding but ironically they are less predictive of loan performance compared with other identities (moral and economic hardship). Thus, some identity claims are meant to mislead lenders while others are true representations of borrowers.

Keywords: Identities, narratives, peer-to-peer lending, decision making under uncertainty, consumer financial decision making

Suggested Citation

Herzenstein, Michal and Sonenshein, Scott and Dholakia, Utpal M., Tell Me a Good Story and I May Lend You My Money: The Role of Narratives in Peer-to-Peer Lending Decisions (May 13, 2011). Available at SSRN: https://ssrn.com/abstract=1840668 or http://dx.doi.org/10.2139/ssrn.1840668

Michal Herzenstein (Contact Author)

University of Delaware ( email )

Newark, DE 19711
United States

Scott Sonenshein

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Utpal M. Dholakia

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
828
Abstract Views
3,587
rank
32,260
PlumX Metrics