The Psychology of the Borrower

Understanding People

1. Observation

2. Explanation

3. Prediction

4. Change

The Ideal (Unreal) Data

10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100

Scan

scor

e (r

elia

bilit

y)

Probability of Default (%)

What do you see?

• IQ tests used in 1919 to recruit and train fighter pilots in WW2

Correlations of g and military performance

Technical proficiency .63

General soldiering .65

Effort and leadership .31

Personal discipline .16

Physical fitness and military bearing .20Source: Adapted from McHenry et al. (1990)

Psychometrics

I like to live everyday to its fullest

1= Strongly Disagree / 5 = Strongly Agree

I like to do things on the spur of the moment

1= Strongly Disagree / 5 = Strongly Agree

Personality

HEALTH

Intrinsicdispositions:

angermistrust

Risky behavioral choices

smokingdrugs

Prevention& reaction

visits to doctortreatment

- - +

A (-), N (+)C (-), N (+)

C (+)

Note. A = Agreeableness, N = Neuroticism, C = Conscientiousness, + = positive influence, - = negative influence

Relationship Success

Ahmetoglu, Swami, and Chamorro-Premuzic (2009).

- Martin, Friedman & Schwartz, 2007

Lothian Birth Cohort 1932, linked with the Midspan Collaboration Study, N = 243; assessment ages between 11 and 50 years (Deary et al., 2005, Intelligence).

IQ predicts SES 39 years later

Predicting Default?

I like to live everyday to its fullest

1= Strongly Disagree / 5 = Strongly Agree

I like to do things on the spur of the moment

1= Strongly Disagree / 5 = Strongly Agree

©2011 Hogan Assessment Systems 18

(Prudence items):1. I frequently do things on

impulse.

2. People think I’m a non-conformist.

3. I like to do things on the spur of the moment.

4. I never know what I will do tomorrow.

5. Sometimes I enjoy going against the rules.

TrueFalse

“I am a fun, spontaneous individual that looks forward to starting each day with a clean slate, ready to meet whatever challenges life has to offer.”

©2011 Hogan Assessment Systems 19

(Prudence items):1. I frequently do things on

impulse.

2. People think I’m a non-conformist.

3. I like to do things on the spur of the moment.

4. I never know what I will do tomorrow.

5. Sometimes I enjoy going against the rules.

TrueFalse

“He tends to be inattentive to details, resist supervision, ignore small process steps, not plan ahead, and rarely think through the consequences of his actions”.

Credit Risk Assessment

Personality and debtRisk propensity is a robust predictor of debt holdings beyond the Big Five personality traits and demographic variables.

(Daly, Delaney, & McManus, 2010)

General anxiety scores are significantly related to personal financial behaviours, such as:

Sages, Britt, & Crumbie (2013)

Money attitudes, in particular ‘anxiety’ and ‘power and prestige’ are associated with defaulter behaviour. Bhardwaj & Bhattacharjee (2010)

Personality traits linked to financial problems

Locus of controlSelf-esteem

Impulsivity Materialism

What do these tell us?

• Files with delinquencies, • Files that have very little information • Income/house owner • Payment history • Debt • Time in file • Account Diversity • Public record entries

A

B

C

D

E

F

G

Support/Resources

Support/Resources

Support/Resources

Support/Resources

Support/Resources

Support/Resources

Support/Resources

Algorithm

Vulnerabilities

Behaviouralpropensities

Capabilities

Prudent Imprudent

Responsible Irresponsible

Cautious Impulsive

Cooperative Uncooperative

Relaxed Anxious

Sociable Detached

Optimistic Pessimistic

Responsible Irresponsible

High risk of lateor non-payment

Low risk of failureto maintain property

Next steps

Next steps

Profile Risk Next steps

Imprudent Imprudent people tend to not think about the consequences of their actions and for this reason they often prioritise the wrong things in their life. They are likely to be spenders rather than savers; and when they spend money it is likely to be on luxuries rather than necessities.

Try to understand the applicant’s real financial position – what are their other outgoings, do they have outstanding debts they need to service etc… Help the applicant build a realistic budget that will allow them to meet their financial responsibilities

Irresponsible The applicant is not a wholly irresponsible person but may, on occasion, behave irresponsibly. As such, they may not always be organised and conscientious when it comes to meeting their responsibilities as a tenant.

Help the applicant understand exactly what their financial responsibilities as a tenant will be. Regularly remind the applicant of their responsibilities and of important dates and deadlines.

Impulsive People who are impulsive find it difficult to exercise self-control. Like imprudent people they are likely to be spenders rather than savers. They are also more likely to get into financial difficulties because they give in to their appetites.

Discuss with the applicant things that they enjoy spending their money on, in order to identify ways in which they could save money. The goal is to get the individual to understand how they can still enjoy their life while also living within their means.

Uncooperative The applicant is capable of being uncooperative and stubborn but is not consistently so.

Appeal to the cooperative side of the applicant’s nature by clearly explaining the importance of cooperation and communication. Agree how you are going to communicate and agree a timetable of regular communication.

High Risk of late or non-payment

Impulsive

• People who are impulsive find it difficult to exercise self-control. Like imprudent people they are likely to be spenders rather than savers.

• They are also more likely to get into financial difficulties because they give in to their appetites.

• Discuss with the applicant things that they enjoy spending their money on, in order to identify ways in which they could save money.

• The goal is to get the individual to understand how they can still enjoy their life while also living within their means.

Profile Risk Next steps

3,000 data points in 25 minutes!

Do you always aim for the same spot?

How long do you take between decisions?

What happens when you fail early on?

How hard do you pull the catapult?

How much risk are you comfortable with?

In conclusion

• Risk = some degree situation / large degree character

• Psychological profiling predicts default beyond credit scores

• And can tell us how to deal with a character

Human psychology

Thank yougorkan@metaprofiling.com