Investing with Fast Thinking

60 Pages Posted: 20 Jun 2018 Last revised: 17 Aug 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: August 16, 2019

Abstract

Using data from a major online peer-to-peer lending market, we document that investors appear to follow a simple decision rule: they focus on loans with high interest rates, disregarding information on credit ratings. Our empirical and experimental analyses uncover three factors that shape the decision rule: time pressure (the stronger the time pressure, the more reliance on interest rates), salience (investors pay more attention to default risks when credit ratings are made more salient on the investment platform), and firsthand experience (investors respond to the defaults of their own loans more strongly than the defaults of peer investors’ loans).

Keywords: rule of thumb, salience, 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 (August 16, 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/site/hongjunyanhomepage/

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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