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Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans

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  • Dezső, Linda
  • Loewenstein, George

Abstract

We surveyed 971 individuals about their experiences with personal loans. Beyond the objective characteristics of the loans (e.g., whether interest was charged), and the purpose of the loan, we tested – and found support for – two main predictions: (1) at recall and evaluation of loans would be subject to a self-serving bias such that borrowers would, for example, recall having paid back a larger proportion of the loan, and (2) that loans, and particularly those not paid off by the agreed upon date, would have pernicious effects on the personal relationship between lender and borrower. Furthermore, we found that borrowers have a blind spot when it comes to recognizing the negative feelings and perceptions evoked in lenders by delinquent loan repayment.

Suggested Citation

  • Dezső, Linda & Loewenstein, George, 2012. "Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 996-1011.
  • Handle: RePEc:eee:joepsy:v:33:y:2012:i:5:p:996-1011
    DOI: 10.1016/j.joep.2012.06.002
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    Cited by:

    1. Felipe Kast & Dina Pomeranz, 2013. "Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile," Harvard Business School Working Papers 14-001, Harvard Business School, revised Jun 2014.

    More about this item

    Keywords

    Personal loans; Self-serving bias; Blind spot;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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