Building a better mousetrap – Peer to Peer Lending edition

Interesting paper over at the NBER about peer to peer lending. I highly recommend reading the entire paper.

The TLDR version:

  • A market set Interest rate is better predictor of default over credit score. This is primary because credit scores are backward looking.
  • For lower quality borrowers, soft/non standard information is relatively more important (in this case for outcome=Fraction repaid) over credit score (this was very counter intuitive¬†¬†to me) Continue reading