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When Beauty Doesn’t Pay


New study finds that lenders on online social lending sites favor average-looking people over pretty people.
Photo illustration by Carla Jacaruso

Good-looking women and men finish first, right?

Not so fast. According to a study recently published in the Journal of Behavioral and Experimental Finance by two Fordham Schools of Business professors, when it comes to getting approved for loans on online social lending sites, the average-looking guys and gals finish first.

Laura Gonzalez, Ph.D., assistant professor of finance and business economics, and Yuliya Komarova, Ph.D., assistant professor of marketing, designed, conducted, and wrote the study, which is cited as a “Top 10 article” on the Social Science Research Network this summer.

Also known as peer-to-peer loans, or P2P, social lending pairs investors with borrowers in what might be described as Facebook meets Kickstarter. The P2P sites provide investors with a quick view of borrowers via photos and short bios. A bio includes credit scores, past loan history with the P2P site, amount seeked, and the reason why the borrower wants the loan.

Most published studies on lending, said Gonzalez, focus on the borrowers rather than lenders. But the nature of P2P allows for a close study of a variety of lenders, instead of a single faceless bank. And most lenders are heavily connected to social media. They get access to a wide variety of borrowers and seek to diversify their portfolio.

Gonzalez said that the study sprung from an undergraduate research paper on which she was the adviser. The student, Kevin McAleer, GSB’11, wanted to investigate social lending, which was still a relatively new phenomenon at the time. The sites began to appear in the UK around 2005 and made their way to the United States by the following year.  McAleer compared the way investors in the two countries approached P2P. He concluded that the American investors were less risk averse, and the results were published in the Journal of Accounting, Finance and Economics.

Komarova and Gonzalez, who shared an office at the time, discussed designing a related study to examine investor behavior. As a marketing professor, Komarova’s focus was to design an experiment that could provide a more nuanced view into how and why investors made certain decisions. As a finance professor, Gonzalez’ focus was to incorporate financial analysis to “squeeze” the data in different directions.

“Social lending is very risky, even in the presence of diversification, because investors lend to people they don’t personally know with limited objective measurable information,” said Gonzalez.

With the help of a few Fordham business students, the two set out to assess how a borrower’s relative gender, relative age, and relative perceived attractiveness might sway a lender’s decision.

To accomplish this, they set up a mock P2P lending site where hundreds of participants were presented with three loan applications to consider and evaluate. Zach Milewisk, GSB ’12, chose photos of several attractive loan applicants and Carla Jacaruso GSB ’12, manipulated those headshots in Photoshop to make them slightly but noticeably less attractive. Both sets of paired images were circulated within the study (although not to the same participant.)

Surprisingly, researchers found that the more attractive the person, the less likely they were to receive the loan. They also found that men were the worst offenders, with male lenders punishing attractive male borrowers for their good looks, but not attractive females.

Even when the researchers varied the credit ratings in the loan applications from “above average” to include “outstanding”, the male lenders still didn’t reward the good lookers with a loan.

The pair concluded that, beyond the rejection of a loan applicant who is too young-looking, borrowers’ rejections “may be driven by seemingly irrelevant characteristics that defy common sense.” In their explanations for smaller lending decisions and even rejection decisions based on images, investors included comments such as “a bit of a party guy,” “not very happy,” and “doesn’t look like a responsible man.”

“[We] found the results counterintuitive and intriguing,” said Komarova. “But based on my reading in the past of evolutionary psychology it made sense.

[We] just didn’t expect to find it in financial decision making.”

Yuliya Komarova (left) and Laura Gonzalez’s collaboration began as conversations held in a shared office.
Photos by Tom Stoelker


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