Determinants and Consequences of Herding in P2P Lending Markets

In this paper, we are interested in the factors that influence herding behavior in P2P lending marketplaces. We are using data from Prosper.com to examine whether internal market specific factors and external economic factors influence the amount of herding exhibited in the market. We also investigate what consequences herding has and how marketplace participants can benefit or suffer from herding behavior in the marketplace. Based on previous models of herding in P2P lending, we calculate a herding measure over time. This herding measure is the basis for our analyses. Our preliminary analyses show support that internal factors measuring uncertainty, lenders experience, and search costs in the market influence herding. We receive inconclusive results for external factors measuring uncertainty, volatility, and bullishness in the marketplace’s economic environment. Herding has several implications for borrowers and lenders including potentially lower interest rates for borrowers but fewer completed listings

Seller Trust in C2C Marketplaces: Who do you Trust?

Transactions in online C2C marketplaces are characterized by uncertainty, information asymmetry, and anonymity, thus increasing the risk of seller opportunism. IS research has established trust between marketplace participants as a crucial element for buyers and sellers to transact online. The objective of this research-in-progress is to better understand what different mechanisms (e.g., e-image of a seller, feedback mechanisms, structural assurances, trust in the community of sellers, or intermediary trust) influence a particular purchase decision in a C2C marketplace exchange and why and how a buyer chooses to transact with a particular seller. Although extensive research has been done on reputation systems, only little research has attempted to get a comprehensive picture of trust in the single seller as well as its relationship with trust in the community of sellers and trust in the intermediary. This study focuses on the buyer’s trust in an individual seller of an online transaction in a C2C marketplace. Specifically, we are interested in the following questions: 1. What is the relationship between trust in the individual seller, trust in the community of sellers, and trust in the intermediary? In particular, how does trust in the intermediary and trust in the community of sellers influence a particular purchase decision of a buyer? 2. What are possible antecedents to trust in an individual seller? The research model relies on the Theory of Reasoned Action (TRA). TRA specifies that trust compromises beliefs, attitudes, and intentions which will lead to actual behavior. External factors influence attitudes, intentions, and behaviors through beliefs. The study develops hypotheses about the relationship between external factors, trust in the individual seller, trust in the community of sellers, trust in the intermediary, and actual transaction behavior. The proposed research method is a survey that allows to investigate a past purchase decision under uncertainty and risk taking. The targeted research setting is a P2P lending marketplace. The advantages of this research setting are (1) sellers can show their trustworthiness through several means (e.g., listing description, financial background, social capital), and (2) active communities of sellers and buyers allow to study the relationship between trust in the individual seller and trust in the community of sellers. This research makes several important contributions to the trust in C2C marketplace literature. First, we explicitly differentiate between three different trust components that are important in a buyer’s purchasing decision: trust in the individual seller, trust in the community sellers, and trust in the intermediary. Second, we develop hypotheses to identify the relationships between the three trust components. Finally, we discuss and propose several different antecedents to a buyer’s trust in an individual seller. Antecedents to trust in the individual seller have, beside extensive research in feedback and rating mechanisms, received only little attention in the literature. However, the e-image of an individual seller is likely to be very important in a purchasing decision and need to be further investigated. This research will be a first step into this direction by focusing on the trust in the individual seller and trying to answer the question why a buyer purchases from one seller and not another

Leadership Behavior in Virtual Communities

The success of open source software like Apache or Linux not only attracts practitioners of IS to look more thoroughly on the development processes of these communities but also attracts researchers to take a closer look on how these communities work. At first glance open source software development is seemingly chaotic and anarchistic (Kuwabara, 2000). However, successful open source software communities like Apache or Linux do have strong leadership, management, and governance structures (apache.org, 2003; Bretthauer, 2002; Fielding, 1999). In these communities single individuals or a group of participants exercise leadership functions and are in charge of the project direction and survival. Currently, a strong focus of the open source software (OSS) literature is especially on the motivation of participants who spend a lot of time and effort without getting a direct monetary compensation. So far, only little is known about how these communities are organized, managed, and governed. This paper will concentrate on successful practices of effective leadership in OSS communities as an example of virtual communities. Specifically, we will look how leadership behaviors influence project performance. A conceptual model of how leadership behaviors influences project performance considering several contingencies will be developed, presented and propositions as well as testable hypotheses will be derived

Make-or-Buy in the Age of Open Source: A Transaction Cost Analysis

Since their appearance, open source communities have become increasingly successful and seemingly pose a real threat to traditional proprietary software vendors. Because open source software has now achieved both recognition and legitimacy, obtaining products and services from communities offers firms an additional alternative in traditional make-or-buy decisions. Transaction cost economics has been widely used as a theory to explain and predict the appropriate governance structure for make-or-buy decisions. By comparing transaction and production costs along a continuum of variable asset specificity, transaction cost economics helps to explain and predict the circumstances in which the open source community is the appropriate governance structure for specific make-or-buy decisions. Our work contributes to existing open source software research by shedding light on the factors that influence the appropriateness of this form of software production for firms. We are also contributing to the body of research surrounding transaction cost economics by incorporating into the original analysis the addition of “communities” as a unique governance alternative

Herding in Multi-winner Auctions

Herding behavior is widely observed in auctions. There are rational reasons for herding but herding can also be counterproductive. We found evidence of herding behavior and sub-optimal outcome in a multi-winner auction setting. This study adds to the knowledge of herding by looking at herding in an auction setting where there is extra incentive to herd (multi-winner auction). Our findings reconfirm evidence in previous research about strategic usage of herding that diminishes after certain threshold; in addition, our findings indicate sub-optimal outcomes of herding behavior which include unjustified risk-return ratio, low ROI, wasted investment opportunities, and underutilized resource

Trust-free Systems - a New Research and Design Direction to Handle Trust-Issues in P2P Systems: The Case of Bitcoin

Trust has always been important in electronic commerce. Prior research in MIS has mainly focused on trust-building mechanisms and insurance against opportunistic behavior. We suggest a “trust-free system” approach, which addresses trust issues by eliminating the need for trust. Using Bitcoin, a decentralized electronic cash system, we illustrate how a system can solve trust issues by becoming “trust-free” through design. We discuss the design features of this approach, and explore research questions for generalizing the design to other information systems. The idea of a trust-free system opens a new way of thinking about trust issues in information systems. We believe that there is an untapped potential for new ideas and research on how to design and evaluate information systems

Prosper—The eBay for Money in Lending 2.0

When a bank or a credit union turns you down for a loan because your debt-to-income ratio is too high, can you turn to total strangers to get the money? Yes, you can, and we are not talking about criminal acts. It\u27s called peer-to-peer (P2P) lending or social lending. Prosper was the first company to take the vision of social lending and convert it into practice on the Internet in the United States, and it enjoyed fast growth after launch. Four years later, however, it is facing old and new challenges, and its survival is on the line. This case depicts the opportunities and pressures Prosper faced, its actions and reactions, and its future. Prosper has made and will make many important decisions, and Prosper’s successes and challenges are rich material to study

The Role of Social Capital in People-to-People Lending Marketplaces

The objective of this paper is to investigate the role of social capital in for-profit People-to-People (P2P) lending marketplaces such as Prosper, the largest P2P lending marketplace in the US. We examine whether marketplace members (lenders, borrowers) are able to capitalize on borrowers\u27 accumulated social capital. From a borrower\u27s perspective, we investigate the influence of social capital on borrowers\u27 chances to obtain funding and better interest rates in general as well as by borrower groups and over time. From a lender\u27s perspective, we investigate the influence of borrowers\u27 social capital on loan payment. We use data over a time span of two and a half years from Prosper, and analyze more than 200,000 loan requests and 27,500 loans. Our results suggest that social capital does not provide equal benefits to all members of Prosper and that mechanisms to promote social capital should be carefully designed