Intuition and Emotion in Bank Loan Officers' Credit Decisions

Abstract

Within the framework of judgment and decision making (JDM), considerable progress has been made in research on how intuitions and emotions affect decision making. Much of this research has been conducted in experimental settings. The present paper reports findings from a naturalistic decision making (NDM) study of how loan officers' so-called gut feelings (emotionally laden intuitions) affect their credit decisions. In-depth interviews with 14 loan officers in a large commercial bank in Israel revealed that they construed credit applications as both a financial transaction and an interpersonal interaction. As a consequence, they integrated “hard” financial data regarding the soundness of the application with “soft” impressions and gut feelings regarding the credibility of the loan applicant. In the reasoning of loan officers, gut feelings were regarded as more valid indicators of the worthiness of the application than were the relevant financial data. Although loan officers regarded their gut feelings as semiarticulate, ill-understood intuitions, these can be traced to observable specifiable cues from clients' behavior.