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

Seth Freedman, Ginger Zhe Jin

NBER Working Paper No. 19820
Issued in January 2014, Revised in February 2018
NBER Program(s):Industrial Organization

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.

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Document Object Identifier (DOI): 10.3386/w19820

Published: 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. citation courtesy of

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