Investing with Fast Thinking

57 Pages Posted: 20 Jun 2018 Last revised: 17 Apr 2019

See all articles by Li Liao

Li Liao

Tsinghua University - PBC School of Finance

Zhengwei Wang

Tsinghua University - PBC School of Finance

Jia Xiang

Tsinghua University - PBC School of Finance

Hongjun Yan

DePaul University

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

Date Written: March 12, 2019

Abstract

Using data from a major online peer-to-peer lending market, we document that investors follow a simple rule of thumb under time pressure: they rush to invest in loans with high interest rates without sufficiently examining credit ratings, which are freely available on the trading interface. Our experiments show that making credit rating information more salient “nudges” investors into better decisions. Firsthand experience matters for learning for non-informational reasons: An investor responds differently when observing a default of her own loan, relative to observing a default of another investor’s loan.

Keywords: Rule of thumb, nudge, firsthand experience, P2P, fast thinking

JEL Classification: G12

Suggested Citation

Liao, Li and Wang, Zhengwei and Xiang, Jia and Yan, Hongjun and Yang, Jun, Investing with Fast Thinking (March 12, 2019). Kelley School of Business Research Paper No. 18-54. Available at SSRN: https://ssrn.com/abstract=3197303 or http://dx.doi.org/10.2139/ssrn.3197303

Li Liao

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Zhengwei Wang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China

Jia Xiang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing, 100083
China

Hongjun Yan (Contact Author)

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/view/hongjunyan

Jun Yang

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

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