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A Note on Credit-Worthiness Tests

  • Kirstein, Roland
  • Neunzig, Alexander R.

Banks often have to determine the credit worthiness, i.e. the ability to repay the loan, of their customers ex-ante. According to the theory of imperfect diagnosis, it can be rational not to use an informative diagnosis result, even though it can be acquired without costs. We call this non-contingent behavior: The decision whether to grant a loan or not is independent of the diagnosis result. Hence, it can be rational to grant a loan to a particular applicant, even if the specific diagnosis result is negative.

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Paper provided by Saarland University, CSLE - Center for the Study of Law and Economics in its series CSLE Discussion Paper Series with number 99-03.

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Date of creation: 1999
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Handle: RePEc:zbw:csledp:9903
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