Trust and Credit

This study considers the impact of trustworthiness on financial markets at the individual transaction level. We employ a natural experiment using the peer-to-peer lending site, Prosper.com. We find that borrowers who are perceived as less trustworthy are economically and significantly less likely to have their loan requests filled, even controlling for physical attractiveness, detailed demographic information, credit profile, income, education, employment and loan-specific information. Indeed, a borrower perceived as trustworthy can promise an interest rate 182 basis points lower than a less trustworthy borrower and have the same likelihood of being funded. These results suggest that agents’ perceptions of trustworthiness are important, even in relatively information-rich environments. JEL classification: D81, D83, G21