Paralyzed by shock: the portfolio formation behavior of peer-to-business lending investors

Research output: Contribution to journalResearch articleContributedpeer-review


  • Gregor Dorfleitner - , University of Regensburg, Hanken School of Economics (Author)
  • Lars Hornuf - , Chair of Business Administration, esp Finance, University of Bremen, Munich Society for the Promotion of Economic Research - CESifo GmbH (Author)
  • Martina Weber - , University of Regensburg (Author)


We examine investor behavior on a leading peer-to-business lending platform and identify an investment mistake that we refer to as default shock bias. First, we find that investors stop investing in new loans and cease diversifying their portfolio after experiencing a loan default. The default shock significantly worsens the risk–return profile of investors’ loan portfolios. The defaults investors experience are often not beyond what would have been expected from the information that was provided by the platform ex ante. Second, investment experience on the platform is related to better investment decisions in general, but it does not reduce the default shock bias. These findings have important implications not only for the behavioral finance literature but also more generally for new forms of Internet-based finance.


Original languageEnglish
Pages (from-to)1037-1073
Number of pages37
JournalReview of Managerial Science
Issue number3
Publication statusPublished - 2023

External IDs

Scopus 85132622748
WOS 000795187300002
Mendeley 557d6edf-c869-38d0-844d-0d5ba54c1702



  • Behavioral finance, Crowdlending, Diversification, Investment bias, Peer-to-business lending, Risk-adjusted return on capital