Learning by Doing with Asymmetric Information: Evidence from Prosper.com

Seth Freedman and Ginger Zhe Jin

No 16855, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using peer-to-peer (P2P) lending as an example, we show that learning by doing plays an important role in alleviating the information asymmetry between market players. Although the P2P platform (Prosper.com) discloses part of borrowers' credit histories, lenders face serious information problems because the market is new and subject to adverse selection relative to offline markets. We find that early lenders did not fully understand the market risk but lender learning is effective in reducing the risk over time. As a result, the market excludes more and more sub-prime borrowers and evolves towards the population served by traditional credit markets.

JEL-codes: D14 D53 D83 L15 L81 (search for similar items in EconPapers)
Date: 2011-03
Note: IO
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Citations: View citations in EconPapers (46)

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