Follow the Profit or the Herd? Exploring Social Effects in Peer-to-Peer Lending

Author

Shen, Dawei ; Krumme, Coco ; Lippman, Andrew

Author_Institution

Media Lab., Massachusetts Inst. of Technol., Cambridge, MA, USA

fYear

2010

fDate

20-22 Aug. 2010

Firstpage

137

Lastpage

144

Abstract

This paper examines the impacts of social factors on lenders´ decision-making in online peer-to-peer (P2P) lending. Data collected from a major U.S. online loan marketplace, Prosper.com, have been analyzed. We propose a model based on preferential attachment and fragmentation to model the bidding behavior of lenders. Our data analysis presents strong empirical evidence that there were significant herding effects when lenders made their investment decisions on loan listings. The distribution of the number of bids put on loan listings exhibits a power law with an exponential cutoff, which matches what the model predicts. The paper concludes that lenders on Prosper did not make rational investment decisions based on risk and returns, but followed the herd.

Keywords

decision making; investment; peer-to-peer computing; socio-economic effects; bidding behavior; data analysis; decision-making; investment decisions; online peer-to-peer lending; Analytical models; Data models; Economic indicators; Investments; Lead; Peer to peer computing; Social factors;

fLanguage

English

Publisher

ieee

Conference_Titel

Social Computing (SocialCom), 2010 IEEE Second International Conference on

Conference_Location

Minneapolis, MN

Print_ISBN

978-1-4244-8439-3

Electronic_ISBN

978-0-7695-4211-9

Type

conf

DOI

10.1109/SocialCom.2010.28

Filename

5590793