Friendships in Online Peer-to-Peer Lending: Pipes, Prisms, and Relational Herding
MIS Quarterly, Vol. 39, No.3, pp.729-742
36 Pages Posted: 15 Apr 2013 Last revised: 26 Aug 2015
Date Written: 2015
Abstract
This paper investigates how friendship relationships act as pipes, prisms, and herding signals in a large online Peer-to-Peer (P2P) lending site. By analyzing decisions of lenders, we find that friends of the borrower, especially close offline friends, act as financial “pipes” by lending money to the borrower. On the other hand, the “prism” effect of friends’ endorsements via bidding on a loan negatively affects subsequent bids by third parties. However, when offline friends of a potential lender, especially close friends, place a bid, a “relational herding” effect occurs as potential lenders are likely to follow their offline friends with a bid.
Keywords: friendship relationships, prism effect, peer-to-peer lending, herding
JEL Classification: E44, D8, D7, G14, M31
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Paper statistics
Recommended Papers
-
Love & Loans: The Effect of Beauty and Personal Characteristics in Credit Markets
-
Love & Loans: The Effect of Beauty and Personal Characteristics in Credit Markets
-
Rational Herding in Microloan Markets: Online Appendix
By Juanjuan Zhang and Peng Liu
-
By Mingfeng Lin, Nagpurnanand Prabhala, ...
-
By Jefferson Duarte, Stephan Siegel, ...
-
By Ajay K. Agrawal, Christian Catalini, ...
-
By Ajay K. Agrawal, Christian Catalini, ...
-
Do Social Networks Solve Information Problems for Peer-to-Peer Lending? Evidence from Prosper.Com
By Seth Freedman and Ginger Zhe Jin
-
Do Social Networks Solve Information Problems for Peer-to-Peer Lending? Evidence from Prosper.com
By Seth Freedman and Ginger Zhe Jin