Investing with Fast Thinking
60 Pages Posted: 20 Jun 2018 Last revised: 17 Aug 2019
Date Written: August 16, 2019
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
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