Social Influence and Defaults in Peer-to-Peer Lending Networks

We assess social influence on borrowers’ default decisions in a peer-to-peer lending market. Our analysis suggests that online borrowers are significantly influenced by defaults in their social networks. A friend’s default decision more than doubles a user’s default rate. We also find that not all friends have equal influences. The social influence is highly significant among online friends made through the peer-to-peer lending site. Social influence is much weaker in magnitude among offline friendships that were carried over to the peer-to-peer lending site.

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