Does experience matter in lending? A process-tracing study on experienced loan officers' and novices' decision behavior

This paper investigates the role of experience in lending and was motivated by two circumstances: (i) prior research on expert judgment has seldom studied how experts and novices make decisions in naturalistic situations and (ii) the assumption that experience leads to consistent credit decisions. Three groups of participants (19 business students, 19 junior and 23 senior loan officers) representing three levels of experience (novice, intermediate experience, and expertise) interacted with software and decided whether loan to small firms should be granted or rejected. In contrast to prior research, the results showed that the experts searched for significantly more cues than the two groups of inexperienced participants. Three explanations for this observation are discussed: task characteristics, absence of search cost, and a combination of risk aversion and responsibility. There was no support for the hypothesis that experts would show high agreement in their judgments, implying that experience does not necessarily result in consistent decisions. The paper also describes the participants' decision-processes. These findings connect to research on descriptive decision models as well as pre-decision distortion and cognitive dissonance. (C) 2003 Elsevier B.V. All rights reserved.