The Influence of Emotion on Households' Borrowing

Abstract

Innovations in financial technology have expanded individuals' access to unsecured personal loans. Building on insights from consumer behavior research that link negative emotions to credit-financed consumption, we show that transitory emotion influences households' use of online loans. Specifically, we find that a lack of positive emotion leads to greater demand for loans. However, emotion-fueled borrowing is associated with a lower likelihood of repayment. We do not find transient emotions to affect households' use of debt provided by traditional credit suppliers. Overall, our evidence highlights that emotions can have heterogeneous implications for households' borrowing depending on the convenience of the debt.

Keywords: Emotions, financial technology, peer-to-peer credit

JEL Classification: D12, D14, G40, G51