Psychological distancing and language intensity in Peer‐to‐Peer lending

• Published date: 01 July 2023
• Author: Jin Huang,Jun Li,Vania Sena
• Date: 01 July 2023
• DOI: http://doi.org/10.1111/joca.12535

RESEARCH ARTICLE

Psychological distancing and language intensity

in Peer-to-Peer lending

Jin Huang

1

| Jun Li

2

| Vania Sena

3

1

School of Intelligent Finance and

Business, Xi'an Jiaotong-Liverpool

University, Suzhou, China

2

Huddersfield Business School,

University of Huddersfield,

Huddersfield, UK

3

Management School, University of

Sheffield, Sheffield, UK

Correspondence

Jin Huang, School of Intelligent Finance

and Business, Xi'an Jiaotong Liverpool

University, Suzhou, China.

Email: jin.huang02@xjtlu.edu.cn

Abstract

Peer-to-peer (P2P) lending is referred to as lending

money to unknown borrowers directly through online

platforms without using traditional financial intermedi-

aries. We leverage insights from the literature on psy-

chological distancing and affective intensity to argue

that linguistic styles, as the manifestation of social psy-

chological distance, have a negative impact on P2P

funding success. Testing our arguments with data from

a major Chinese P2P platform, we find that using too

many “you”and negations (proxies for social psycho-

logical distance) in the borrower's description will

dampen a lender's willingness to support a funding

campaign. Moreover, when the social psychological dis-

tance is large, language intensity can be perceived as

desperate, making a lender even less willing to support

the funding campaign. Our research shed new light on

the role of language in P2P funding success and has

practical implications for lenders, borrowers and regu-

lators in overcoming barriers in P2P lending.

KEYWORDS

language intensity, P2P lending, social psychological distance

1|INTRODUCTION

Peer-to-peer (P2P) lending transactions are defined as lending money to strangers directly

through online platforms without traditional financial intermediaries such as banks (Ge

Received: 21 March 2022 Revised: 30 January 2023 Accepted: 8 April 2023

DOI: 10.1111/joca.12535

Copyright 2023 by The American Council on Consumer Interests.

J Consum Aff. 2023;57:1281–1303. wileyonlinelibrary.com/journal/joca 1281

et al., 2017). Lending platforms can operate at a lower cost than other financial institutions, so

they can pass the saving on to lenders through high returns and to borrowers through low inter-

est rates. These loans are unsecured, unlike traditional financial institutions that rely heavily

on collateral (Huang et al., 2021). This feature of P2P platforms is particularly attractive to bor-

rowers who cannot provide collateral, but it may make lenders unlikely to be compensated in

the event of default. P2P lending is also called debt-based crowdfunding

1

because each lender

only contributes to a part of the total loans (Nisar et al., 2020). Other types of crowdfunding

include reward and equity-based crowdfunding. More than $78 billion in loans are facilitated

by the two leading US P2P platforms, Prosper and Lending Club. There are around 6600 plat-

forms in China, and the total amount of P2P loans is 9 trillion RMB as of 2021 (Xu

et al., 2022). As a result, P2P lending has become an essential source of funds for consumers

and entrepreneurs (Herzenstein, Dholakia, & Andrews, 2011; Huang et al., 2021; Lin

et al., 2013; Parhankangas & Renko, 2017). Given the huge amount of P2P loans transacted

each year, P2P lending deserves attention from both researchers and practitioners.

Information asymmetry is the main source of financial risk in P2P lending (Ge et al., 2017).

Information asymmetry in the P2P context means that borrowers have an information advan-

tage over lenders and lenders need to make decisions under incomplete information. To reduce

information asymmetry, borrowers are encouraged to communicate directly with lenders. Since

P2P lending takes place in online settings, borrowers can only communicate their projects'

financial “soundness”to potential lenders in written form. Unlike offline interactions in which

non-verbal cues matter, in online interactions, borrowers' use of language is essential. The

crowdfunding literature has investigated the association between language and funding out-

comes in different settings, including reward-based crowdfunding (Anglin et al., 2018;

Parhankangas & Renko, 2017), equity-based crowdfunding (Block et al., 2018) and P2P lending

(Allison et al., 2013; Herzenstein, Sonenshein, & Dholakia, 2011; Majumdar & Bose, 2018).

Studies have found the vital role of language in framing the signals of the creditworthiness of

funding applicants and the financial soundness of projects in P2P lending (Anglin et al., 2018;

Dorfleitner et al., 2016; Huang et al., 2021). However, these studies have primarily focused on

using language in the context of project descriptions to mitigate information asymmetry and its

resulting risks.

The use of language in P2P lending platforms also involves using various linguistic styles

that can induce emotional connection and reduce the social psychological distance between

borrowers and lenders, which should increase the likelihood of funding success. Linguistic

styles include auxiliary verbs, prepositions, conjunctions, pronouns and negations (Tausczik &

Pennebaker, 2010; Toma & D'Angelo, 2015). Style words account for 55% of the total words we

typically use, although they only represent 0.04% of all words (Pennebaker, 2011; Tausczik &

Pennebaker, 2010). The use of style words can connect readers with the social and psychological

worlds of the message's author (Parhankangas & Renko, 2017; Tausczik & Pennebaker, 2010).

Comparatively speaking, the role of language in this respect is less well understood, and

research in this area is significantly underdeveloped. To fill this gap, this study examines the

effect of social psychological distance, which stems from the use of style words, on funding suc-

cess. Social psychological distance is defined as people's perception of the degree of distance

between things and objects and the self.

Trope and Liberman (2010) have identified four dimensions of psychological distance,

including spatial distance (i.e., close location vs. location far away), social distance (i.e., friend

vs. stranger), temporal distance (i.e., tomorrow vs. next year) and probabilistic distance (i.e., less

likely to occur vs. closer to certainty). We focus on social psychological distance for the

1282 HUANG ET AL.