Inaccurate Information in Marketplace Loans
58 Pages Posted: 12 Feb 2019 Last revised: 25 Sep 2020
Date Written: September 25, 2020
Inaccuracy of borrower-provided information in marketplace loans for credit card debt repayment and consolidation contains information about credit risk. I identify inaccuracies based on three indicators: consistency of loan amount with outstanding credit balance, roundness of reported income, and roundness of chosen loan amount. An Inaccuracy Index constructed from these indicators has significant predictive power over the likelihood of default, and the additional default risk is not compensated by higher interest. Inaccurate information is more prevalent in areas with lower social capital, implying weaker social norms, among borrowers whose professions are considered less honest, and among borrowers with higher genuine income uncertainty.
Keywords: marketplace loan, inaccurate information, credit risk, round number heuristic
JEL Classification: D12, D91, G23, G41
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