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| What Role Does Appearance Play In Your Creditworthiness? |
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| SciMed - Neuroscience | |||
| TS-Si News Service | |||
| Friday, 13 March 2009 16:00 | |||
 Houston, TX, USA. New research increases understanding of how a person’s appearance may play a role in whether they are deemed trustworthy by financial lenders. The researchers found that borrowers who are perceived as trustworthy are more likely to have their loan requests granted. The seemingly untrustworthy person must promise to pay an interest rate almost 2 percent higher than those deemed trustworthy to have the same chance of getting a loan.The study is summarized in a working paper by Jefferson Duarte at the Jones Graduate School of Management of Rice University and Stephan Siegel and Lance Young, both of the University of Washington.
“We found that people take into account someone’s appearance when engaging in commercial transactions — even in situations where a lot of information about the parties involved is available,” said Duarte, visiting associate professor in management at Rice.
Using Prosper.com loan dataDuarte and his colleagues looked at 6,821 loan applications submitted to the popular online peer-to-peer lending site Prosper.com, where people seeking loans are matched up with people willing to lend money.
At Prosper.com, borrowers submit information such as their credit profile, job history, education level and income along with terms of a loan they wish to obtain. The borrowers may also supply photographs and a statement about why they are seeking a loan or its intended use. At that point, lenders look at the borrowers’ profiles.
If lenders are interested in offering the borrower a loan, they place a bid for their business. If there are enough bids, the loan application is filled; otherwise, the loan application expires. Of the 6,821 applications used by the researchers, 733 became loans.
A cross-check at MTurkThe researchers then turned to Amazon.com's Mechanical Turk (MTurk), a site that brings together people who need a task done with people seeking work. The research team supplied 25 MTurk “workers” with only the photographs of the borrowers and asked them to rate the borrowers' trustworthiness on a scale of 1 to 5. They were also asked to assess the probability that the person in the photograph would repay a $100 loan.
With these responses, the researchers built a measure of trustworthiness based on the photographs. Armed with the physiognomy-based trustworthiness measures, the team found that perceived trustworthiness of borrowers correlates with the ratings on their credit history filed at Prosper.com. That is, the MTurk workers could distinguish people with high credit scores from people with low credit scores based solely on the photographs.
Summing upThe researchers also found that people perceived as trustworthy default on their loans less often, even after accounting for credit scores. "This implies that the pictures revealed something about borrower creditworthiness that is not accounted for in traditional credit scoring models," Duarte said.
Another finding: Lenders on Prosper.com use the information in the picture when deciding to make a loan — even with all the information that is available about the borrower's credit history. People perceived as trustworthy get loans more often, even after accounting for traditional creditworthiness measures, such as credit scores.
CitationTrust and Credit. Jefferson Duarte, Stephan Siegel, and Lance A. Young. Rice University: Working Paper Series. (17 Feb 2009).
Download PDF Abstract 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 untrustworthy 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, in order to have the same probability of being funded as a borrower perceived as trustworthy, a borrower who is perceived as untrustworthy must pay a promised interest rate that is 182 basis points higher. These results suggest that agent's perceptions of trustworthiness are important, even in relatively information-rich environments. JEL classification: D81, D83, G21
Keywords: Trust, information asymmetry, consumer credit, peer-to-peer lending.
 The TS-Si News Service is a collaborative effort by TS-Si.org editors, contributors, and corresponding institutions. Sources can include the cited individuals and organizations, as well as TS-Si.org staff contributions. Articles and news reports do not necessarily convey official positions of TS-Si, its partners, or affiliates. We welcome your comments. Use the form below to leave a public comment or send private correspondence via the TS-Si Contact Page. We will not divulge any personal details or place you on a mailing list without your permission.TS-Si is dedicated to the acceptance, medical treatment, and legal protection of individuals correcting the misalignment of their brains and their anatomical sex, while supporting their transition into society as hormonally reconstituted and surgically corrected citizens.
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| Last Updated on Friday, 13 March 2009 11:42 |
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