The role of appearance attractiveness and loan amount in peer-to-peer lending: Evidence from event-related potentials

Abstract

In recent years, peer-to-peer (P2P) lending has become a popular financial channel for raising capital. However, in contrast to traditional lending, in P2P lending, lenders must evaluate the risk of the loan application themselves with limited objective information and professional knowledge. Therefore, information which can be easily obtained may largely influence lenders’ loan decisions, making lenders’ decisions more subjective. Because appearance attractiveness is one of the most important personal characteristics, particularly for females, the current study was designed to investigate whether and how potential borrowers’ appearance attractiveness influences investors’ decisions in online P2P lending by using event-related potentials (ERPs). Our results showed that at the behavioral level, the lending decision for attractive borrowers is associated with shorter reaction times (RTs) than that for unattractive borrowers. In contrast, at the brain level, a large loan amount elicited a larger error-related negative (ERN) amplitude than a small loan amount for unattractive borrowers, which was not the case for attractive borrowers. This finding could be explained as the borrowers’ appearance attractiveness modulating the lenders’ risk perceptions in P2P lending because lenders are more tolerant when attractive borrowers default and because attractive females may convey more trustworthy impressions according to the theory of perceived risk.