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Crowd financing is a burgeoning phenomenon that promises to improve access to capital by enabling borrowers with limited financial opportunities to receive small contributions from individual lenders towards unsecured loan requests. Faced with information asymmetry about borrowers' credibility, individual lenders bear the entire loss in case of loan default. Predicting loan payment is therefore crucial for lenders and for the sustainability of these platforms. To this end, we examine whether the ''wisdom'' of the lending crowd can provide reliable decision support with respect to projects' long-term success. Using data from Prosper.com, we investigate the association between the dynamics of lending behaviour and successful loan payment through interpretable classification models. We find evidence for collective intelligence signals in lending behaviour and observe variability in crowd wisdom across loan categories. We find that the wisdom of the lending crowd is most prominent in the auto loan category, but it is statistically significant for all other categories except student debt. Our study contributes new insights on how signals deduced from lending behaviour can improve the efficiency of crowd financing thereby contributing to economic growth and societal development.
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Real Effects of Search Frictions in Consumer Credit Markets
We show that search frictions in credit markets affect accepted interest rates and loan sizes and distort consumption. Using data on car loan applications and originations not intermediated by car dealers, we isolate quasi-exogenous variation in both the costs and benefits to searching for credit. After identifying lender-specific policies that price risk discontinuously, we study the differential response to offered interest rates by borrowers who face high and low search costs. High-search-cost borrowers are 10$$\%$$ more likely to accept loan offers with higher markups, consequently originating smaller loans and purchasing older and less expensive cars than lower-search-cost borrowers.
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- Award ID(s):
- 1944138
- PAR ID:
- 10503309
- Editor(s):
- Matvos, Gregor
- Publisher / Repository:
- Society of Financial Studies
- Date Published:
- Journal Name:
- The Review of Financial Studies
- Volume:
- 36
- Issue:
- 7
- ISSN:
- 0893-9454
- Page Range / eLocation ID:
- 2685 to 2720
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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- Free Publicly Accessible Full Text
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Accepted Manuscript1.0
- Journal Article:
- https://doi.org/10.1093/rfs/hhac088
