Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: 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.

Keywords: Discounting anomalies; magnitude effects; P2P platform; time preferences

JEL-codes: D91; G02; G12

41 pages, April 14, 2020

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