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The Information Value of Online Social Networks: Lessons from Peer-to-Peer Lending

Seth Freedman () and Ginger Zhe Jin

No 19820, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine whether social networks facilitate online markets using data from a leading peer-to-peer lending website. We find that borrowers with social ties are consistently more likely to have their loans funded and receive lower interest rates; however, most borrowers with social ties are more likely to pay late or default. We provide evidence that these findings are driven by lenders not fully understanding the relationship between social ties and unobserved borrower quality. Overall, our findings suggest caution for using online social networks as a signal of quality in anonymous transactions.

JEL-codes: D53 D82 L81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-soc and nep-ure
Date: 2014-01
Note: IO
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Published as Seth Freedman & Ginger Zhe Jin, 2017. "The information value of online social networks: Lessons from peer-to-peer lending," International Journal of Industrial Organization, vol 51, pages 185-222.

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