An empirical examination of cultural biases in interpersonal economic exchange

Economic trade between individuals, supported by an array of global electronic marketplaces, comprises an ever-growing proportion of the global economy. Prominent online companies like eBay, Amazon and Freelancer.com regularly afford individuals the opportunity to engage others the world over. Importantly, however, such trade has may introduce new hurdles. Though technology reduces the role of distance, it does very little to mitigate cultural differences. As such, in this study, we seek to identify and quantify the effects of cultural differences on economic exchange between individuals. We focus upon the world's largest micro-lending website, employing an aggregate dataset that incorporates three million loans. Referring to theories of bounded rationality and cyber-balkanization, we demonstrate that lenders prefer culturally similar borrowers. Further, we find that lenders only appear to concern themselves with cultural differences insofar as they are aware of those differences, as the preference for similar borrowers is much stronger in local lending.