Trust and Lending: An Experimental Study

44 Pages Posted: 5 May 2020 Last revised: 3 Aug 2021

See all articles by Kyle B. Hyndman

Kyle B. Hyndman

University of Texas at Dallas

Jiabin Wu

University of Oregon - Department of Economics

Steven Chong Xiao

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: October 29, 2020

Abstract

This paper investigates the importance and the determinants of trust in a lending situation using a controlled experiment. We find that communication can facilitate collaboration between lenders and borrowers through three channels of trust: 1) an information channel, 2) a preference channel, and 3) a reciprocity channel. Our results highlight the role of trust in mitigating the moral hazard problem in lending.

Keywords: Behavioral Finance, Trust, Lending, Financial Risks, Banking, Credit Markets, Experimental Economics

JEL Classification: C90, G21, G32, G41

Suggested Citation

Hyndman, Kyle B. and Wu, Jiabin and Xiao, Steven Chong, Trust and Lending: An Experimental Study (October 29, 2020). Available at SSRN: https://ssrn.com/abstract=3572430 or http://dx.doi.org/10.2139/ssrn.3572430

Kyle B. Hyndman

University of Texas at Dallas ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Jiabin Wu

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

Steven Chong Xiao (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
92
Abstract Views
622
rank
346,855
PlumX Metrics