Trust and Lending: An Experimental Study
44 Pages Posted: 5 May 2020 Last revised: 3 Aug 2021
Date Written: October 29, 2020
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: Suggested Citation