What's in a Face？An Experiment on Facial Information and Loan Approval Decision
59 Pages Posted: 19 Jul 2021
Date Written: July 17, 2021
Face-to-face communication is essential in daily life but relatively little is known about whether seeing a face improves people’s decision quality. This experimental paper studies the loan approval decisions based on the historical cash loan data with real repayment outcomes, and exogenously varies whether and how a borrower’s facial information is provided. We find that facial information does not improve subjects’ decisions, despite the fact that it can predict repayment behavior in a machine learning algorithm. This is because subjects have various biases in evaluating facial photos; and they rely excessively on facial information in making the loan approval decisions.
Keywords: facial information, cash loan, repayment behavior, machine learning
JEL Classification: D80, D91, G41
Suggested Citation: Suggested Citation