Thinking Fast, Not Slow: Evidence from Peer-to-Peer Lending

Abstract

Most people rely on fast thinking to make decisions. Fast thinking focuses on the most prominent information available, potentially ignoring critical factors in favor of less relevant, but salient details (Kahneman 2011). The primary obstacle to studying fast thinking is identifying and measuring quick decisions in a natural setting. We examine investors’ fast thinking on Renrendai, one of China’s top P2P lending platforms. Loans on Renrendai are typically funded in a matter of minutes; and funding details (e.g., percentage funded, and time stamps for each lender’s commitment) are publicly available in real time. This provides an ideal laboratory for studying the role of fast thinking in decision-making. We show that Renrendai investors tend to rush to invest in risky high-interest loans, which default more often and deliver lower returns than expected. The introduction of a mobile app that makes interest rates even more salient exacerbates this fast-thinking bias. We reinforce these empirical findings with experiments on attention and learning. Our results have important implications for the broader financial industry. In an increasingly digitized world, information overload and limited attention may press investors to make decisions quickly, ignoring critical information. Our research can help investors avoid the trap of fast thinking and improve the quality of their investment decisions

Keywords: Fast-thinking; Learning; P2P lending

JEL Classification: D10, G02