Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330036 
Year of Publication: 
2023
Citation: 
[Journal:] Games [ISSN:] 2073-4336 [Volume:] 14 [Issue:] 3 [Article No.:] 43 [Year:] 2023 [Pages:] 1-24
Publisher: 
MDPI, Basel
Abstract: 
This paper theoretically studies the interaction between an informed borrower and an uninformed lender facing possible default of a loan application. The lender is motivated to invest cognitive resources before making a lending decision. If the regulatory fine is weak, it is impossible for a bad-debt borrower to fully disclose his situation in the application. In this case, when the likelihood of a bad debt is low, the borrower always claims that nothing in the application is wrong. Otherwise, the borrower randomizes between full disclosure and information suppression. The transaction cost of the lender's pre-lending cognition increases with the default probability, as the default probability is small and decreases thereafter. Evidence from a peer-to-peer lending platform with 816,274 observations between 2012 and 2015 in the United States is largely consistent with our model implications.
Subjects: 
information suppression
cognition
motivated belief
awareness
P2P platforms
JEL: 
D82
D83
D86
L14
L15
G51
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
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