Microfinance Decision Making: A Field Study of Prosocial Lending

Jeff Galak, Deborah Small, and Andrew T. Stephen
Journal of Marketing Research (JMR)
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Micro-financing, or small uncollateralized loans to entrepreneurs in the developing world, has recently emerged as a leading contender to cure world poverty. Our research investigates the characteristics of borrowers that engender lending on kiva.org, a popular organization that connects individual lenders to borrowers through micro-finance. Using real lending behavior from 23,024 loans (289,329 individual lending decisions and USD $19,001,937 in funds), we first observe that lenders favor individual borrowers over groups or consortia of borrowers. In other words, as the number of borrowers in a borrower consortium increases, the less likely is an individual lender to lend to that consortium. Consistent with prior experimental research, we expect that this is because an individual lender is less likely to empathize with a group of borrowers than he or she is with an individual borrower. Second, we also observe that lenders favor borrowers that are socially proximate to themselves across three dimensions: gender, occupation, and first name initial. For example, a male lender is more likely to lend to a male borrower, a farmer is more likely to lend to a borrower who plans to use the loan to help cultivate crops, and a lender whose name is Bill is more likely to lend to a borrower whose name is Bob. Across all three of these dimensions, we observe that lenders prefer to give to those who are more like themselves.

Biography
Jeff Galak is Assistant Professor of Marketing at the Tepper School of Business, Carnegie Mellon University. He earned his doctorate in marketing from the Stern School of Business, New York University. Dr. Galak was awarded the BP Junior Faculty Chair and in recognition of his research efforts. He studies a variety of topics related to consumer behavior including satiation to hedonic experiences, financial decision making, fluency effects, and memory. He has published in leading marketing (Journal of Consumer Research, Journal of Marketing Research, and Journal of Consumer Psychology), psychology (Journal of Experimental Psychology: General and Journal of Experimental Social Psychology), and decision science (Judgment and Decision Making) journals.

Deborah Small is Associate Professor of Marketing and Psychology at the Wharton School of Business, University of Pennsylvania. She earned her doctorate in Psychology and Behavioral Decision Sciences from Carnegie Mellon University. She studies a variety of topics related to consumer behavior including prosocial decision making, financial decision making, and emotions. She has published in leading marketing (Journal of Consumer Research, Journal of Marketing Research), psychology (Journal of Experimental Psychology: Applied, Journal of Personality and Social Psychology, Psychological Science, and), and decision science (Journal of Behavioral Decision Making, Journal of Risk and Uncertainty, and Organizational Behavior and Human Decision Processes journals.

Andrew T. Stephen is Assistant Professor of Business Administration and Katz Fellow in Marketing at the Joseph M. Katz Graduate School of Business, University of Pittsburgh. Prior to the Katz Graduate School of Business, Dr. Stephen was Assistant Professor of Marketing at INSEAD. He earned his doctorate in marketing from Columbia Business School and studies a variety of marketing topics related to social networks, social media, emotions, and financial decision making. He is a past winner of the AMA’s John A. Howard Award, and a finalist in the JMR Paul E. Green Award. He has published in leading marketing (Journal of Marketing Research, Journal of Service Research, and Journal of Business Research), psychology (Psychological Science), and sociology (Social Networks) journals.

Journal of Marketing Research, Volume 48, Special Issue 2011
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Jeff Galak, Deborah Small, and Andrew T. Stephen
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