Psychology: Loan applications processed around 12pm are more likely to be rejected. study finds


Applying for a loan? Avoid midday! Applications processed around 12pm are more likely to be rejected as bankers suffer from ‘decision fatigue’

  • Researchers studied the decisions made by 30 bank credit officers over a month
  • Specifically, they looked at 26,501 loan repayment restructuring requests
  • Decision fatigue is caused by making too many difficult choices in a row 
  • While refusing a loan restructure involves a loss to the bank, defaulting is worse
  • The declined requests around lunchtime cost the bank some $500,000 overall 

Bank credit officers are more likely to approve loan requests early and late in the working day — and reject those processed around noon, a study found.

UK psychologists studied the decisions made on 26,501 loan restructuring requests by a major bank’s team of 30 credit officers over the course of one month.

They found the officers appeared to develop ‘decision fatigue’ around the middle of the day, making them more likely to default to the safer option of saying no.

Processing loan-related requests involves weighing up the customer’s financial strengths against their risk factors — and is therefore cognitively demanding.

Making the wrong decision can be costly, as although restructuring often results in a loss compared to the original payment plan, defaulting can be worse for the bank.

According to the team, the findings highlight how having regular breaks amid long periods of intense work can make employees more productive overall.

Bank credit officers are more likely to approve loan requests early and late in the working day ¿ and reject those processed around 12pm, a study found (stock image)

Bank credit officers are more likely to approve loan requests early and late in the working day — and reject those processed around 12pm, a study found (stock image)

DECISION FATIGUE 

Decision fatigue is the mental exhaustion caused by having to make difficult decisions repeatedly over the course of long period of time.

Past research showed that this fatigue leads people to fall back on whatever the ‘default’ choice is — the option that either seems easier or safer. 

‘Credit officers were more willing to make the difficult decision of granting a customer more lenient loan repayment terms in the morning,’ said paper author and psychologist Simone Schnall of the University of Cambridge.

‘But by midday they showed decision fatigue and were less likely to agree to a loan restructuring request.’

‘After lunchtime they probably felt more refreshed and were able to make better decisions again,’ she added.

In the study, the loan applications the credit officers were processing were so-called restructuring requests.

These are cases where a struggling customer who already has a loan is asking the bank to adjust their repayment schedule to help them.

By studying decisions at a bank, the team were able to provide the first calculation of the economic impacts of decision fatigue in a specific context.

Customers were seen to be more likely to completely repay their loan if their schedule was restructured than if the original repayment terms were maintained.

This meant that the trend of declining more requests around lunch resulted in an avoidable financial loss for the bank.

The researchers concluded that the bank could have collected an additional $500,000 in loan repayments if all decisions had been made in the early morning, before the fatigue had set in.

UK psychologists studied the decisions made on 26,501 loan restructuring requests by a major bank's team of 30 credit officers over the course of one month. They found the officers appeared to develop 'decision fatigue' around the middle of the day (pictured), making them more likely to default to the safer option of saying no

UK psychologists studied the decisions made on 26,501 loan restructuring requests by a major bank's team of 30 credit officers over the course of one month. They found the officers appeared to develop 'decision fatigue' around the middle of the day, making them more likely to default to the safer option of saying no (pictured)

UK psychologists studied the decisions made on 26,501 loan restructuring requests by a major bank’s team of 30 credit officers over the course of one month. They found the officers appeared to develop ‘decision fatigue’ around the middle of the day (left), making them more likely to default to the safer option of saying no (right) 

‘Even decisions we might assume are very objective and driven by specific financial considerations are influenced by psychological factors,’ said paper author and psychologist Tobias Baer, also of the University of Cambridge.

‘This is clear evidence that regular breaks during working hours are important for maintaining high levels of performance.’ 

The full findings of the study were published in the journal Royal Society Open Science.

BEING GENEROUS ‘REALLY DOES MAKE YOU HAPPY’, STUDY FINDS

Being generous really does make people happier, according to research in 2017 from an international team of experts.

Neurons in an area of the brain associated with generosity activate neurons in the ventral striatum, which are associated with happiness, the study found.

A group of 50 volunteers in Switzerland took part in a spending experiment, with each given 25 Swiss Francs (£20/$25) per week for four weeks. 

As part of the experiment, participants performed an independent decision-making task, in which they could behave more or less generously while brain activity was measured using functional magnetic resonance imaging (fMRI).

They were asked to choose to give between three and 25 francs of their money as a present to a recipient different from those previously chosen.

The researchers found that participants who had committed to spending their endowment on others behaved more generously in the decision-making task.

They also discovered greater self-reported increases in happiness as compared to the control group. 

The full results were published in the journal Nature Communications.

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