Attributes and Impacts of Learning from Prior Lenders in Peer-to-peer Lending

Abstract

Learning from others is a facet of human nature. In peer-to-peer lending, potential lenders who are interested in the loan, but have not yet funded it, observe and learn from the behavior of prior lenders who have funded the loan. It is unclear, however, whether potential lenders learn from the prior lenders’ attributes other than the observed bidding behavior. Using data from PPDai.com, the study finds that potential lenders consider the prior lender’s risk preference, investment experience, and historical investment performance when making investment decisions. Specifically, potential lenders are more likely to fund loans that have more female or older prior lenders. The potential lenders’ decisions are positively affected by the proportion of prior lenders with long account duration, high investment success ratio, low bad debt ratio, and high money-weighted rate of return.