Loan applications processed around midday more likely to be rejected

Bank credit officers are more likely to approve loan applications earlier and later in the day, while ‘decision fatigue’ around midday is associated with defaulting to the safer option of saying no.

  Rejected stamp  Credit: By Tayeb Mezahdia from Pixabay

These are the findings of a study by researchers in Cambridge’s Department of Psychology, published in the journal Royal Society Open Science

Decision fatigue is the tiredness caused by having to make difficult decisions over a long period. Previous studies have shown that people suffering from decision fatigue tend to fall back on the ‘default decision’: choosing whatever option is easier or seems safer. 

The researchers looked at the decisions made on 26,501 credit loan applications by 30 credit officers of a major bank over a month. The officers were making decisions on ‘restructuring requests’: where the customer already has a loan but is having difficulties paying it back, so asks the bank to adjust the repayments.

By studying decisions made at a bank, the researchers could calculate the economic cost of decision fatigue in a specific context - the first time this has been done. They found the bank could have collected around an extra $500,000 in loan repayments if all decisions had been made in the early morning.

“Credit officers were more willing to make the difficult decision of granting a customer more lenient loan repayment terms in the morning, 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,” said Professor Simone Schnall in the University of Cambridge’s Department of Psychology, senior author of the report.

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Image:  Rejected stamp

Credit: By Tayeb Mezahdia from Pixabay

Reproduced courtesy of the University of Cambridge

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