Are Investors More Likely to Make Mistakes under Fast-Thinking? Evidence from Peer-to-Peer Lending

Investment opportunities on internet-based P2P lending appear and disappear in a few minutes. It provides a natural testing ground for the hypothesis that people are liable to make mistakes under fast-thinking (Kahneman 2011). Using one of the leading P2P lending platforms in China,, we show that under fast-thinking investors tend to overweigh high interest rates, instead of incorporating comprehensive information such as the default risk. The overweight of interest rates results in higher default rates and poorer returns than expected. In sum, we conclude investors are more likely to make mistakes under fast-thinking.