Apply for a loan? Avoid lunchtime! Applications that are processed around 12 noon are more likely to be rejected because bankers suffer from “decision fatigue”.
- The researchers examined the decisions of 30 bank lending officers over a month
- In particular, they dealt with 26,501 loan repayment restructuring requests
- Decision fatigue is caused by making too many difficult decisions in a row
- While a loan restructuring refusal will incur a loss for the bank, the default is worse
- The rejected inquiries around noon cost the bank around $ 500,000 in total
Bank lending officers are more likely to approve loan applications early and late on the working day – and reject those that are processed around noon, according to a study.
British psychologists examined the decisions a major bank team of 30 loan officers made on 26,501 loan restructuring requests in one month.
They found that by mid-day the officers appeared to develop “decision fatigue”, increasing the likelihood that they would default on the safer option of saying no.
Processing credit-related inquiries involves weighing the customer’s financial strengths against their risk factors – and is therefore cognitively demanding.
Making the wrong decision can be costly as restructuring often results in losses from the original payment plan, but failure can be worse for the bank.
According to the team, the results show how regular breaks in long phases of intense work can make employees more productive overall.
Bank lending officers approve loan applications earlier and later on the working day – and reject those that were processed around 12 noon, as a study found (archive image).
Decision fatigue is the mental exhaustion caused by making difficult decisions repeatedly over a long period of time.
Previous research has shown that this fatigue leads people to resort to the default choice – the option that seems either easier or safer.
“Loan officers were more willing to make the difficult decision of granting a customer milder loan repayment terms in the morning,” said Cambridge University paper writer and psychologist Simone Schnall.
“But by noon they showed decision-making fatigue and were less likely to approve a loan restructuring request.”
“After lunchtime, they probably felt refreshed and made better decisions,” she added.
In the study, the loan applications processed by the loan officers were so-called restructuring applications.
These are cases where a struggling customer who already has a loan will ask the bank to adjust their repayment schedule to help them.
By studying decisions at a bank, the team was able to estimate the first effects of the economic impact of decision fatigue in a given context.
It has been found that if customers restructure their schedule, they are more likely to repay their loan in full than if the original repayment terms were retained.
This meant that the trend of declining more lunch-related requests resulted in an avoidable financial loss for the bank.
The researchers concluded that the bank could have received an additional $ 500,000 in loan repayments if all decisions had been made early in the morning, before the fatigue set in.
British psychologists examined the decisions a major bank team of 30 loan officers made on 26,501 loan restructuring requests in one month. They found that by the middle of the day (left) officers appeared to develop “decision fatigue”, which increases the likelihood that they will oppose the safer option of saying no (right).
“Even decisions that we might assume are very objective and depend on certain financial considerations are influenced by psychological factors,” said paper author and psychologist Tobias Baer, also from the University of Cambridge.
“This is clear evidence that regular breaks during work hours are important to maintain a high level of performance.”
The full results of the study were published in the journal Royal Society Open Science.
BEING GENEROUS “REALLY MAKE YOU HAPPY”, STUDY FINDS
Being generous really makes people happier, according to a 2017 study by an international team of experts.
Neurons in an area of the brain associated with generosity activate neurons in the ventral striatum associated with happiness.
A group of 50 volunteers in Switzerland took part in a spending experiment that gave away 25 Swiss Francs (£ 20 / USD 25) per week for four weeks.
As part of the experiment, participants performed an independent decision-making task in which they were able to behave more or less generously while brain activity was measured using functional magnetic resonance imaging (fMRI).
They were asked to give between three and 25 francs of their money as a gift to a recipient who is different from those previously chosen.
The researchers found that out Participants who committed to spend their foundations on others were more generous in making decisions.
They also discovered larger self-reported increases in happiness compared to the control group.
The full results have been published in the journal Nature Communications.