Using data from a major online peer-to-peer lending market, we document that investors follow a simple rule of thumb under time pressure: they rush to invest in loans with high interest rates without sufficiently examining credit ratings, which are freely available on the trading interface. Our experiments show that making credit rating information more salient “nudges” investors into better decisions. Firsthand experience matters for learning for non-informational reasons: An investor responds differently when observing a default of her own loan, relative to observing a default of another investor’s loan.
Liao, Li and Wang, Zhengwei and Xiang, Jia and Yan, Hongjun and Yang, Jun, Investing with Fast Thinking (March 12, 2019). Kelley School of Business Research Paper No. 18-54. Available at SSRN: https://ssrn.com/abstract=3197303 or http://dx.doi.org/10.2139/ssrn.3197303