Trust and Lending: an Experimental Study
Social Science Research Network(2020)
Abstract
This paper investigates the importance and the determinants of trust in a lending situation using a controlled experiment. We find that communication can facilitate collaboration between lenders and borrowers through three channels of trust: (1) an information channel, (2) a preference channel, and (3) a reciprocity channel. Our results highlight the role of trust in mitigating the moral hazard problem in lending.
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Key words
Behavioral finance,trust,lending,financial risks,banking,credit markets,experimental economics
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