The Luxury of Rounding: Heuristics and Private Information
Publication Date
1-16-2026
Abstract
We study how deviations from commonly used decision heuristics can reveal economically meaningful private information. In our empirical setting of loan amount choices on a major FinTech platform, we show that borrowers' non-rounding behavior predicts credit risk beyond standard observables used in screening and pricing. Using unique field data, a stylized model, and complementary evidence from a natural experiment and a laboratory experiment, we identify a mechanism in which financially constrained borrowers have stronger incentives to incur cognitive costs and choose more precise, non-heuristic amounts. These borrowers subsequently experience systematically worse repayment outcomes, yet this information is not reflected in the platform-set interest rates, exposing retail investors to disproportionate risk. Our findings highlight a general channel through which subtle deviations from heuristics transmit private information and help alleviate information frictions in economic decision-making.
Document Type
Article
Keywords
Cognitive Heuristics, Private Information, Credit Default, Financial Constraints
Disciplines
Finance
Source
SMU Cox: Finance (Topic)
Language
English
