Understanding Lenders’ Investment Behavior in Online Peer-to-Peer Lending: A Construal Level Theory Perspective

Abstract

This study explores the decision-making process in online peer-to-peer (P2P) lending, a rapidly growing source of fixed income for investors. We examine how lenders’ bidding amounts are influenced by interest rates and psychological distance, which is determined by the borrower’s demographic attributes. Our findings, based on data from a popular Chinese P2P lending platform, reveal that geographic distance decreases bidding amounts, indicating a home bias effect. Conversely, social distance increases bidding amounts, suggesting a social distance effect. Interestingly, both types of psychological distance amplify the positive impact of interest rates on bidding amounts. Four controlled experiments further validate these relationships. This research not only contributes to the theoretical understanding of P2P lending but also offers practical insights for policymaking in the high-risk financial context.