How Mood Affects Your Bank Loan

Your local bank robber and the Super Bowl can determine how a loan officer treats you.

Where are we going? To how emotional events affect financial decisions.

Post Robbery Trauma

In Colombia, looking at the aftermath of 835 bank robberies between 2003 and 2011, researchers observed different behavior from loan officers. Immediately after a heist, bank employees offered longer lasting loans, slightly lower interest rates and they requested more collateral. Longer loans meant dealing with fewer people, lower interest rates require less haggling and more collateral diminishes the need for background checks. Because those decisions brought fewer people into the bank, they have been characterized as avoidance behavior—a logical response to the trauma of a robbery.

Super Bowl Mortgages

But it does not take a robbery to get a yes for a loan. You might just need a Super Bowl win. Looking at sentiment generating events between 1994 and 2010, researchers concluded that your banker is very human. If her team wins the Super Bowl, during the next two days, perhaps displaying (excessive) optimism, she will up her mortgage application approvals by 4.5 percent while a loss brings them down by .6 percent. The only problem? Those approvals have a higher default rate.

Our Bottom Line: Behavioral Nudges

Researchers have concluded that a sentiment generating event appears to affect a banker’s decision making. It can relate to the requisite qualifications for bank loans and the volume of mortgages. It can correlate to events that range from a bank robbery to a World Cup win.

On the demand side of financial transactions, the same sorts of phenomena have been observed. Local stock market prices temporarily rise in countries that have been World Cup hosts. Prices also go up after the volume of calm tweets rises while anxious Twitter activity seems to relate to a down Dow. Even rain and shine appear to affect market activity.

The behavioral research on financial decision making always takes me to Sunstein and Thaler’s Nudge. The more we know about incentives, the more we can encourage the supply and demand sides of the market to make wise decisions. For some of us that means more impersonal algorithms and government regulation while for others (like me), we look to the incentives created by market’s invisible hand.