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A Note on Credit-Worthiness Tests

Roland Kirstein and Alexander R. Neunzig

No 99-03, CSLE Discussion Paper Series from Saarland University, CSLE - Center for the Study of Law and Economics

Abstract: Banks often have to determine the credit worthiness, i.e. the ability to repay the loan, of their customers ex-ante. According to the theory of imperfect diagnosis, it can be rational not to use an informative diagnosis result, even though it can be acquired without costs. We call this non-contingent behavior: The decision whether to grant a loan or not is independent of the diagnosis result. Hence, it can be rational to grant a loan to a particular applicant, even if the specific diagnosis result is negative.

Keywords: Diagnosis Theory; Imperfect Decision Making; Adverse Selection; Banks; Credit Rationing (search for similar items in EconPapers)
JEL-codes: K00 G21 D81 (search for similar items in EconPapers)
Date: 1999
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