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UW Researchers: Unexpected Sunshine Leads To More Mortgage Loan Approvals

401(k) 2012

The University of Washington has hard data showing that an unexpectedly beautiful day outside can influence how we make decisions at work. Specifically, it can lead people to become more careless.  

Ran Duchin, associate professor of finance at the UW Foster School of Business, wanted to understand whether we make different decisions at work depending on our mood, so he and the other researchers on his team looked at mortgage applications.

They ignored the applications from people who were clearly bad candidates for a loan because of their low credit scores and spotty employment histories.  They also ignored applications from people with fantastic credit scores who would definitely get approved.

Instead, they focused on the ones that were marginal and subject to a judgment call by the loan officer. So Duchin and the other researchers looked at those applications and then examined what the weather was like when the loan officer decided to reject or approve.

"We sort of know from psychology that when it’s cloudy, people tend to be less happy than when it’s sunny," Duchin said. "You can get that data at an hourly level across all weather stations in the U.S. You just get it online."

Turns out, loan officers were more likely to approve those marginal loans on unexpectedly sunny days and reject more of them on unexpectedly cloudy days. 

Loan Performance

"The cool thing about this data is that for all the applications that are approved, we could actually trace the performance of those loans being originated, after they’re approved," Duchin said.

Those loans approved on unexpectedly sunny days were more likely to wind up in default. Duchin says the solution may be to take some of that decision making process out of the hands of human beings.

"The real question is to what extent should we automate some of the decision-making processes in financial firms ... to avoid this sort of human factor, these mistakes," he said.

Another alternative, he said, is that lenders could impose financial penalties on employees whose loans end up in default. That could serve as a disincentive so that mortgage loan officers would use more caution, no matter what the weather is like outside.

In July 2017, Ashley Gross became KNKX's youth and education reporter after years of covering the business and labor beat. She joined the station in May 2012 and previously worked five years at WBEZ in Chicago, where she reported on business and the economy. Her work telling the human side of the mortgage crisis garnered awards from the Illinois Associated Press and the Chicago Headline Club. She's also reported for the Alaska Public Radio Network in Anchorage and for Bloomberg News in San Francisco.
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