Magnitude effects in lending and borrowing:Empirical evidence from a P2P platform

For varying borrowing and lending amounts, the corresponding subjective discount rates will also vary. A situation where high amounts correspond to lower discount rates is called a conventional magnitude effect, while the op-posite is called a reverse magnitude effect. We present an overview of the theoretical arguments for both kinds of magnitude effects. Against this back-ground, we then offer the first comprehensive empirical analysis of this issue based on real-life transaction data. To do so, we rely on more than 9,000 credit applications from the formerly largest German peer-to-peer (P2P) lending platform, Smava, between February 2007 and April 2013. We con-firm that there is a conventional magnitude effect for lending money to oth-ers but a reverse magnitude effect for borrowing decisions. We suggest, as an explanation for our findings, the prevalence of cost-based determinants of magnitude effects in this special setting.