Selection into Informative Consumer Credit Markets

48 Pages Posted: 5 Dec 2016 Last revised: 2 Jan 2019

See all articles by Inessa Liskovich

Inessa Liskovich

University of Texas at Austin - Department of Finance

Maya Shaton

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: June 25, 2018

Abstract

Recent technological innovation in credit markets has made it easier for households to access information about their cost of credit. We exploit a quasi-natural experiment in an online consumer credit market to identify which households take advantage of informative markets. In the setting studied, a lending platform switched from offering personalized loan prices to pricing by broad credit grades. We find that individuals with fewer years of experience in credit markets immediately and disproportionately exit the market, especially among riskier borrowers. We conclude that less experienced borrowers sort into markets that offer personalized information. Additional analysis confirms that their behavior is consistent with learning from personalized offers. Our results highlight the role of the growing fintech sector in allowing inexperienced households to learn about their costs of credit.

Keywords: consumer finance, household finance, fintech, peer-to-peer lending

JEL Classification: D12, D14, G20

Suggested Citation

Liskovich, Inessa and Shaton, Maya O, Selection into Informative Consumer Credit Markets (June 25, 2018). Available at SSRN: https://ssrn.com/abstract=2879040 or http://dx.doi.org/10.2139/ssrn.2879040

Inessa Liskovich

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Maya O Shaton (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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