{"667901":{"#nid":"667901","#data":{"type":"news","title":"New Research Indicates Political Preferences Influence Online Lending Decisions","body":[{"value":"\u003Cp\u003EIf you need a loan, you might try walking into a bank branch and meeting with a loan officer. But you might also try a peer-to-peer online lending platform such as \u003Ca href=\u0022https:\/\/www.prosper.com\u0022\u003EProsper.com\u003C\/a\u003E or \u003Ca href=\u0022https:\/\/www.kiva.org\/\u0022\u003EKiva\u003C\/a\u003E. These platforms publish your loan request and interested investors \u2013 individuals or companies \u2013 fund your loan. In contrast to a bank loan in which the money comes from the bank, the money in a peer-to-peer loan comes from a group of investors, many of whom may be individuals similar to the borrower. If your credit score looks good and your request is reasonable, you should have no problem attracting investors to fund your loan. But what if attracting investors to your loan depends on whether you live in a \u201cred\u201d or a \u201cblue\u201d state?\u003C\/p\u003E\r\n\r\n\u003Cp\u003EThat\u2019s the question two faculty members, \u003Ca href=\u0022https:\/\/www.scheller.gatech.edu\/directory\/faculty\/overby\/index.html\u0022\u003EEric Overby\u003C\/a\u003E\u003Cspan\u003E, Catherine and Edwin Wahlen Professor of Information Technology Management at the Georgia Tech Scheller College of Business, and \u003C\/span\u003E\u003Ca href=\u0022https:\/\/jindal.utdallas.edu\/faculty\/hongchang-wang\/\u0022\u003EHongchang Wang\u003C\/a\u003E, assistant professor of Information Systems at the University of Texas -Naveen Jindal School of Management, investigated in their paper \u201c\u003Ca href=\u0022https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3908046\u0022\u003EDo Political Differences Inhibit Market Transactions? An Investigation in the Context of Online Lending\u003C\/a\u003E\u003Cspan\u003E,\u003C\/span\u003E\u201d forthcoming in \u003Cem\u003EManagement Science\u003C\/em\u003E.\u003C\/p\u003E\r\n\r\n\u003Cp\u003E\u003Cstrong\u003ELocation and Ideology \u003C\/strong\u003E\u003C\/p\u003E\r\n\r\n\u003Cp\u003E\u003Cspan\u003ESuppose an investor in Alabama \u2013 generally considered a red state \u2013 is choosing between two loans to fund. The borrowers have similar profiles, with one living in South Dakota (also a red state) and the other living in Vermont (a blue state). Wang and Overby asked the question: Would the Alabama investor be more likely to fund the South Dakota borrower because they are more likely to share political ideologies and personal worldviews?\u003C\/span\u003E\u003C\/p\u003E\r\n\r\n\u003Cp\u003E\u003Cspan\u003EThe researchers used data on who lent to whom in the peer-to-peer lending market prosper.com from 2006 to 2011 to study this question. They applied multiple models, including a gravity model and a difference in differences (DID) model that looked at how investors reacted to California\u2019s legalization of same-sex marriage. They found a nuanced effect. Lending offers dropped by as much as 11.6% when the investor\u2019s state was more conservative than the borrower\u2019s state. But when the investor\u2019s state was more liberal than the borrower\u2019s state, there was no significant relationship.\u003C\/span\u003E\u003C\/p\u003E\r\n\r\n\u003Cp\u003E\u201cWhen California legalized same-sex marriage, we found that investors from most states reacted by issuing more lending offers to California borrowers, except for investors from states with much more conservative political ideologies,\u201d said Professor Wang.\u003C\/p\u003E\r\n\r\n\u003Cp\u003E\u201cThe difference between investors from liberal and conservative states relates to an on-going debate in the psychology literature,\u201d Professor Overby said. \u201cThe \u2018prejudice gap\u2019 hypothesis posits that conservatives are more intolerant of liberals than vice versa, whereas the \u2018ideological conflict\u2019 hypothesis posits that conservatives and liberals are equally intolerant of each other. Our results are consistent with the \u2018prejudice gap\u2019 hypothesis.\u201d\u0026nbsp;\u003C\/p\u003E\r\n\r\n\u003Cp\u003ERelated, the researchers found that borrowers from states that are more liberal than those of the investors active on the platform were less likely to have their loans funded. As Professor Overby explained, \u201cThe negative effect of political distance interfered with the basic function of the platform because fewer loans were getting funded.\u201d\u003C\/p\u003E\r\n\r\n\u003Cp\u003E\u003Cstrong\u003EExperience Matters\u003C\/strong\u003E\u003C\/p\u003E\r\n\r\n\u003Cp\u003EHowever, the political distance effect was not apparent for experienced investors. As Wang described, \u201cWe found that the political distance between a borrower and the group of investors funding the loan doesn\u2019t affect the loan\u2019s repayment performance. It may be that investors learn this as they gain experience, so they stop considering a borrower\u2019s likely political ideology in their lending decisions.\u201d\u003C\/p\u003E\r\n\r\n\u003Cp\u003EWang and Overby\u2019s research speaks to the negative effects of political polarization. In many cases, those with opposing political ideologies can\u2019t agree on basic facts. The study shows that the negative effects of polarization also apply to peer-to-peer lending, at least for inexperienced investors. But as Overby put it, \u201cThe issue we document is not unsolvable. It goes away with experience, likely as investors learn that differences in political ideology don\u2019t predict loan performance. We think education from peer-to-peer lending platforms about the factors that \u003Cem\u003Edo\u003C\/em\u003E predict loan performance can substitute for this experience.\u201d\u003C\/p\u003E\r\n","summary":"","format":"limited_html"}],"field_subtitle":"","field_summary":[{"value":"\u003Cp\u003E\u003Cspan\u003E\u003Cspan\u003E\u003Cspan\u003EResearch by Georgia Tech Scheller College of Business faculty member Eric Overby finds there is political bias in online lending platforms between investors and borrowers in red or blue states, but this bias declines as investors gain experience. \u003C\/span\u003E\u003C\/span\u003E\u003C\/span\u003E\u003C\/p\u003E\r\n","format":"limited_html"}],"field_summary_sentence":[{"value":"Research by Georgia Tech Scheller College of Business faculty member Eric Overby shows political bias exists between investors and borrowers in red or blue states. "}],"uid":"28082","created_gmt":"2023-05-25 19:14:59","changed_gmt":"2023-06-09 14:36:53","author":"Lorrie Burroughs","boilerplate_text":"","field_publication":"","field_article_url":"","dateline":{"date":"2023-05-25T00:00:00-04:00","iso_date":"2023-05-25T00:00:00-04:00","tz":"America\/New_York"},"extras":[],"hg_media":{"670907":{"id":"670907","type":"image","title":"Political graphics ","body":null,"created":"1685553104","gmt_created":"2023-05-31 17:11:44","changed":"1685553143","gmt_changed":"2023-05-31 17:12:23","alt":"Political party graphics","file":{"fid":"253873","name":"political-parties-graphic[35].jpg","image_path":"\/sites\/default\/files\/2023\/05\/31\/political-parties-graphic%5B35%5D.jpg","image_full_path":"http:\/\/hg.gatech.edu\/\/sites\/default\/files\/2023\/05\/31\/political-parties-graphic%5B35%5D.jpg","mime":"image\/jpeg","size":272057,"path_740":"http:\/\/hg.gatech.edu\/sites\/default\/files\/styles\/740xx_scale\/public\/2023\/05\/31\/political-parties-graphic%5B35%5D.jpg?itok=w_CVPYVi"}}},"media_ids":["670907"],"related_files":{"253873":{"fid":null,"name":"Political graphics ","file_path":"\/sites\/default\/files\/2023\/05\/31\/political-parties-graphic%5B35%5D.jpg","file_full_path":"http:\/\/hg.gatech.edu\/\/sites\/default\/files\/2023\/05\/31\/political-parties-graphic%5B35%5D.jpg","mime":"image\/jpeg","size":272057,"description":null}},"related_links":[{"url":"https:\/\/www.youtube.com\/watch?v=XUv9U5vRyxU\u0026t=31s","title":"Watch the video to hear Dr. Overby talk about his research."}],"groups":[{"id":"1214","name":"News Room"}],"categories":[{"id":"139","name":"Business"}],"keywords":[{"id":"35541","name":"Ernest Scheller Jr. College of Business"},{"id":"187915","name":"go-researchnews"}],"core_research_areas":[],"news_room_topics":[{"id":"71901","name":"Society and Culture"}],"event_categories":[],"invited_audience":[],"affiliations":[],"classification":[],"areas_of_expertise":[],"news_and_recent_appearances":[],"phone":[],"contact":[{"value":"\u003Cp\u003ELorrie Burroughs\u003C\/p\u003E\r\n","format":"limited_html"}],"email":[],"slides":[],"orientation":[],"userdata":""}}}