What's in a Picture?: Evidence of Discrimination from Prosper.com

Who can get money? Evidence from the Chinese peer-to-peer lending platform

“…Similarly, the coefficients associated with gender, education background and marital status become insignificant or less statistically significant. These results indicate that the offline authentication process could help to reduce taste-based discrimination which is often found in credit markets (see Ross and Yinger, 2004;Pope and Sydnor, 2011). We also find that an offline listing with a low interest rate is less likely to be funded but that, once the interest rate increases to a certain high level, the likelihood of funding success significantly increase.…”

“…Duarte et al (2012) and Ravina (2008) both find that borrowers with more positive characteristics -like trustworthiness and beauty -have a higher probability of having their loans funded and also tend to default on their loans less often. Pope and Sydnor (2011) present evidence for taste-based discrimination against blacks, the elderly and the overweight; these borrowers are less likely to secure loans and more likely to pay higher interest rates if they do. Loureiro and Gonzalez (2015) find that more attractive and financially successful borrowers of the same gender as lenders are less likely to have their loan requests filled and suggest that interpersonal competition significantly influences online lending decisions.…”

“…Duarte et al (2012), Pope and Sydnor (2011) and Ravina (2008) focus on facial attributes such as race and beauty of the borrowers, addressing the literature on racial bias and the beauty premium based on the data from Prosper. Duarte et al (2012) and Ravina (2008) both find that borrowers with more positive characteristics -like trustworthiness and beauty -have a higher probability of having their loans funded and also tend to default on their loans less often.…”

“…Freedman and Jin, 2008;Weiss et al 2010;Pope and Sydnor, 2011;Ravina, 2008;Lin et al 2013;Iyer et al 2016) and crowdfunding, another type of alternative financing activities (e.g. Belleflamme et al 2015;Colombo et al 2015;.…”

Rational Herding in Microloan Markets

“…A Prosper credit grade is a letter grade on a seven-point scale, ranging from AA to HR ("high risk"), which Prosper assigns based on the verified Experian Scorex PLUS credit score from the borrower's credit report. (Ravina 2008), lender learning from hard versus soft information (Iyer et al 2009), perceived trustworthiness (Duarte, Siegel and Young 2010), borrowers' identity claims (Herzenstein, Sonenshein, and Dholakia 2011), taste-based discrimination (Pope and Sydnor 2011), and interest rate caps (Rigbi 2011). Another stream of research examines the social network effects of Prosper, such as how friend endorsements affect loan performance (Freedman and Jin 2008), how borrowers' group affiliations relate to loan default risk (Everett 2010), how the strength and verifiability of relational network measures influence funding outcomes and loan defaults (Lin, Viswanathan and Prabhala 2011), and how participation in online communities changes lenders' risk preferences (Zhu et al 2011 we record a set of its attributes and monitor its funding progression, including the amount of funding it has received, the number of bids, and its current interest rate.…”