Learning by Doing with Asymmetric Information: Evidence from Prosper.com / Seth M. Freedman, Ginger Zhe Jin.

Format:

Book

Author/Creator:

Freedman, Seth M.

Contributor:

National Bureau of Economic Research.

Jin, Ginger Zhe.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16855.

NBER working paper series no. w16855

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Learning by Doing with Asymmetric Information

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

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.

Notes:

Print version record

March 2011.