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Publication of ELS Lab @Leiden member Niek Stohmaier et al on biases in bankers’ decision making

A recent publication by Niek Strohmaier, Assistant Professor of Empirical Legal Studies (ELS) Lab @Leiden, together with Professor Jan Adriaanse, Professor Kees van den Bos and Associate Professor Helen Pluut, has been accepted by the Journal of Applied Social Psychology.

The publication is titled: 'Similarity bias in credit decisions for entrepreneurs on the brink of bankruptcy'. This publication can be accessed via the following link: https://doi.org/10.1111/jasp.12775

When dealing with companies in financial distress, it is important that investors and bankers accurately assess the viability of such companies, free of unwanted biases. Otherwise, there is a risk that good money is thrown after bad in trying to save unviable businesses or that sound businesses end up being liquidated unnecessarily, both leading to (social) capital destruction. This is all the more important in the current Covid-19 crisis in which millions of companies around the globe struggle to survive.

This paper investigated whether similarity bias among bankers can cause such erroneous decision making. The results paint an interesting picture in that bankers were more likely to attribute the cause of a company’s downfall to external factors (rather than to the entrepreneur) when the entrepreneur was perceived as more similar to themselves. In such cases of heightened similarity, bankers were also more likely to trust that the entrepreneur would be able to turn the company around. Interestingly though, similarity bias did not seem to affect the final credit decision.

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