Promise keeping, relational closeness, and identifiability: An experimental investigation in China

Abstract

We experimentally investigate some key features of internet peer-to-peer (P2P) lending: the borrower specifies the amount of money required and makes a contingent promise about the value of the generally higher repayment prior to the investor's decision to lend the required sum or not. We examine the role played by two factors related to traditional Chinese culture and ethics: whether (i) guanxi, relational closeness between the actors and (ii) the ability of the actors to observe each other's identity after the repayment decision (identifiability or mianzi concerns) affect the borrowers' decisions to make the promised repayments and ultimately the consequent aggregate realized social benefits. Using a two-by-two factorial design, we conduct four experimental treatments in China and also perform the identifiability treatment in New Zealand as a cultural control. We find that in China both manipulations were positively and significantly related to the probability of a repayment promise being kept. Moreover, these two factors were substitutes for each other. In New Zealand, there was no significant identifiability effect on promise keeping. Over time, relational closeness and identifiability both led investors in China to accept more proposals, resulting in more investment and the creation of greater social surplus.