Idle ramblings of a wandering mind...

Closing This Blog

2009-05-24T15:34:00.004-04:00

Time has come to close this blog...

I have graduated from the PhD program at the Ross School of Business, Univ of Michigan and have joined the faculty of Lubar School of Business, University of Wisconsin - Milwaukee. This blog is currently hosted on Univ of Michigan servers - and will probably be shut down pretty soon by Michigan server gods.

Take Care!

The New Age of Innovation

2008-03-19T21:24:00.002-04:00

Finally it is here - three years in the making - it will make its debut on May 16th 2008. What is it you ask? It is the book that is destined to become a bestseller (and I know 'cause I have read it :-) - check out the Amazon page of The New Age of Innovation by Prof C K Prahalad and Prof M S Krishnan.

I have seen this book take shape for more than three years now. Prof Krishnan is of course my PhD advisor and I had the opportunity to do some background research for the book for him. This also meant that I could read all the work-in-progress manuscripts. At the end of this process, now that the book is finished and about to be launched, I have this immense sense of pride that comes from a job well done. Prof Prahalad and Prof Krishnan have achieved the holy grail of business books in this one - marry the top level vision with an implementable roadmap. This book is not just about the lofty ideas and strategic foresight (which it has in plenty, as you would expect of any book with Prahalad on the cover), it also goes deep in IT and Operations issues of how to implement the strategy - how to get the value and not just talk about it.

The book is available for pre-order on Amazon for 20 bucks. Run and reserve your copy. Now!

LaTeX - Love and Hate Continues

2007-12-14T20:13:00.000-05:00

As the title indicates - my love/hate relationship with LaTeX continues. For the uninitiated - LaTeX is a document preparation system that relies on explicit commands rather than the WYSIWYG interface of word-processors like MS-Word. More about LaTeX is available here. I have written many times about LaTeX - Click Here for my previous LaTeX related posts.

After really trying very hard to use LaTeX for all my writing needs, I had to give up because using LaTeX for day to day activities was getting too tedious - and many software I need for my writing (like EndNotes for reference management) are not compatible with LaTeX. Well - so I thought! Recently, I had to make a few documents for my job search - and I was just not satisfied with the quality of the output I got with MS-Word. I converted the document into LaTeX - and voila! the documents came out just so much better. Here is the proof: click here for the LaTeX document - and ask yourself if you could get the same look and feel in MS-Word! I could not.

So here is my compromise status - when I need to create documents where quality is most important - I am using LaTeX; and when I need to make documents quickly and use specialized software like EndNotes - I am going to use MS-Word. Now - the template you use has a tremendous impact on the quality of LaTeX documents - and I have had to spend a lot of time tweaking my LaTeX templates to get them just right for the Letter page size most commonly used in US. If you are looking for a decent LaTeX template - look not further - here is the LaTeX file for the document linked above. This file will create one inch margins on all sides for a Latter size paper. Note that this template is made for using "pdflatex" command that directly makes .pdf files.

I had once made a small button/icon for supporting LaTeX on my website. Please feel free to copy it and use it on your site if you find it useful:

On the subject of buttons - here is one for the statistical system R - again - feel free to use it on your website:

ICIS: International Conference on Information Systems 2007

2007-12-12T12:54:00.000-05:00

I am writing this from the lobby of the good but not "fairmont good" - Queen Elizabeth Hotel in Montreal, Canada - the venue for ICIS 2007. I presented my paper on Information Sharing and Service Oriented Architecture (SOA) use in supply chains. The paper was received very well - I had more than 60 people in attendance - standing room only. Here is the paper's abstract. Full paper is available from the conference proceedings - if you want the full paper but can't find the proceedings - drop a comment/email and I will send you one. The paper was nominated for the best paper award at ICIS.

SOA and Information Sharing in Supply Chain: “How” Information is Shared Matters!

Abstract

We empirically analyze the impact of SOA adoption on performance benefits of information sharing in supply chains using a dataset of 305 large US firms. We show that complexity and transparency of information sharing process significantly impact performance. Information sharing complexity has a negative effect while transparency has a positive effect. We also demonstrate that SOA adoption is successful in mitigating the negative effects of process complexity. Interestingly, SOA adoption also leads to reduction in performance benefits of information sharing transparency. We contribute to business value of IT research by providing empirical evidence of business value of SOA. We show that both “what” information is shared and “how” it is shared affect performance and they interact differently with SOA adoption. Our results emphasize the interaction between process characteristics and technology architecture and provide directions for managers to orchestrate information sharing processes in supply chains and leverage SOA for optimal performance.

This also happens to be the year that I am in the job market - that means a lot of interviews. So this was a busy conference - busy but successful.

Going to INFORMS CIST 2007, Seattle

2007-08-23T01:59:00.000-04:00

My research paper "Impact of SOA Use on Performance Outcomes of Information Sharing in Supply Chain" has been accepted for the INFORMS CIST - Conference on Information Systems and Technology 2007. This would be my second visit to CIST. I love this conference for its open, discussion oriented format and great participation. This will be my fourth research conference presentation this year (after Academy, AMCIS and ICIS) - the year is turning out rather well.

Bank of One: Prosper.com

2007-08-18T20:04:00.000-04:00

I have just came back from AMCIS 2007 - Americas Conference on Information Systems. The conference was held at the beautiful Keystone, Colorado. I presented my preliminary paper on Prosper.com titled - "Bank of One: Empirical Analysis of Peer to Peer Financial Marketplace". The presentation was received very well. I even received an invitation to submit it to a very good journal - which is quite nice. Several attendees asked me for a copy of my presentation - so here is a PDF copy of my AMCIS 2007 presentation on Prosper.com. The paper itself is available through AMCIS Proceedings or you can leave a comment on this post with your email and I would be happy to send you a copy of the paper.

Update:
I received several appreciate emails about the presentation file posted above. The post was linked in several blogs including Tom's excellent blog: Prosper Lending Review - Thanks Tom.

Crazy Pricing in Airlines Industry

2007-05-01T01:35:00.000-04:00

Have Airlines Lost Their Mind?

I have heard stories of Airlines doing some really crazy pricing. However - I had never came across on such masterpiece face to face - till this week.

I was looking for flights from Detroit to Tulsa, OK. I was not sure of my return date so I tried looking for one-way flights. Horror of horrors - this is what I find. Look at the screenshots below. The first screenshot is for a return flight - leaving May 10th and returning May 20th. The second screenshot is a one way journey (exactly same as the first half of the return journey).

Screenshot 1: Return Flight, Price: $401

Screenshot 2: One way flight, Price: $730

Note that the two flights use exactly the same setup for the common part - same flight no. So - at any rate, the return flight should be expensive than the one way - its the same flight plus some more. However, the reality is completely upside down. The on way ticket is almost double in price than the return ticket that has the one way ticket embedded in it. One might as well buy the return ticket and then throw away the return part of the ticket.

I can't think of any justification for it - it just does not make sense. Airline industry it seems uses all kinds of sophisticated revenue management systems, yield management systems etc etc. - and after than if they are coming up with this amazingly crazy pricing then something is surely wrong somewhere.

PS> Northwest has been bleeding money past few years and it under bankruptcy now. See any lconnections??

How does Prosper.com Make Money?

2007-04-29T13:06:00.000-04:00

Recently one of the readers of this blog - Akash, posed this question about Prosper.com:

Great blog. I am trying to understand the p2p lending biz models out there, such as prosper and zopa. What I am struggling with how these guys make money:

- looking at the public data, these sites take on average 1% origination fee from borrower, and 0.5% from lenders (on outstanding loan), then it would appear that they are not making a lot of money even on a loan volumes of $1 Billion ($15M in revenue)
- when will these companies make money? their expenses even running an internet outfit will be high
- they have raised over $20M in VC money;

Questions:

- what are investors seeing that I am not able to grasp? (assuming they will get traction)
- will they be able to monetize their loans in the secondary market somehow

Here are my thoughts on the subject:

Current Revenue and Cost Streams for Prosper
I agree that on the current scale of operation, Prosper is not making too much money. However - look at the other side - the business model is risk free - once the loan has originated, the future revenue stream (apart from defaults) is guaranteed. The cost elements of the business are very low - running the site costs only little, they do not have too many employees (double figures only), Prosper is not doing any paid marketing and once the platform is established, they can outsource most of the routine work. With sustained growth for a few years - they will have enough scale to make decent money with very little downside.

My sense is that their current cash burnout rate is quite low - so their $50 million venture funding should go a long way. Even if they need extra cash, they have a positive cash flow in future with all the loan repayments - so they shouldn't have problem raising either secureed debt or the next round of venture financing.

Future Revenue Streams
I imagine that once they have established their current business model, they will start cross-selling other financial products. Lender's insurance, database mining, prosper security backed credit cards, syncing your prosper account with your paypal account... secondary trading in Prosper loans... the possibilities are endless. Oh yes - Prosper Loan insurance - insurance than lenders can buy that will protect them against loan default - this can be a pretty good business - I will buy it, especially after suffering through the pain of a couple of defaults!!

Secondary Trading of Prosper Loans
As far as secondary trading in Prosper loans is concerned - I hope Prosper introduces something similar soon. Currently there is no "exit" for Prosper lenders - you got to wait 36 months for your payments to slowly trickle in. What if you need some cash out? Right now the only good way is for you to actually borrow in Prosper for a similar amount that you have lent out. I am not sure whether anybody has really tried it as an exit strategy - although there are several lenders which try to use it as an arbitrage strategy. Creating a secondary market is not difficult at all - in fact it will be remarkably similar to the current platform. A current lender can put a portfolio of loans up for auction and other lenders can bid for it. Once the auction clears - the documentation can get shifted to the new owners of the loan. Easy! This secondary market will bring liquidity to Prosper loans and encourage more lenders to participate as they will always have an opportunity to exit the market.

Research Conferences in Information Systems

2007-04-28T16:08:00.001-04:00

One of the ways I decide what to post about is by looking at what search terms browsers are looking for while reaching my blog. This is quite easily accomplished by using traffic tracking services like sitemeter or mybloglog (I use both). Recently many visitors came to my blog looking for information about Information Systems research conferences. So - here is an attempt to provide some commonly needed information about Information Systems research conferences. This includes large conferences that look at business application of Information Technologies/Systems. This consolidated information would be useful for starting PhD students in MIS/IS/IT area. Disclaimer: This is by no means an exhaustive list and the acceptance rates mentioned are approximate.

Starting off there are two kinds of research gatherings - those that publish full papers in proceedings and those that don't. The difference is important to realize. Since you can publish a paper only once, if the paper is published in its full form in a conference proceeding then you can not publish the paper in a journal without significant revision. On the other hand, conferences that do not publish proceedings or only publish a abstract of the paper in their proceeding - then you are free to publish the same paper later in a journal. Conferences of this type are often called a workshop.

ICIS - International Conference on Information Systems (Link to ICIS 2007):
Acceptance Rate: 12-15%
Proceedings: Full Paper

ICIS is the most prominent research conference in IS research area. Its a large gathering with a very international profile. I have been to last two ICIS (Vegas and Milwaukee) and both have been very positive experiences. The papers are of good quality, attendance in paper sessions is quite decent and most active researchers in IS are usually there. ICIS also hosts job interviews for IS faculty positions. ICIS 2007 is in Montreal, Canada. ICIS publishes full proceedings and is very very selective. Its acceptance rates in past years have been around 12-15% - which is very low for a conference - its quite difficult to get a paper accepted at ICIS.

AMCIS - Americas Conference on Information Systems (Link to AMCIS 2007):
Acceptance Rate: ~50%
Proceedings: Full Paper, Research-in-Progress

AMCIS is a really large gathering of IS researchers - but mostly has participation from US. The high acceptance rate means that its comparatively easier to get your paper accepted here. Attendance in paper sessions is good but lower than in AMCIS. However - I recommend going to this conference as you get to know a lot of IS researchers and some Universities hold their hiring interviews at AMCIS.

HICSS - Hawaii International Conference on Systems Sciences (Link to HICSS 2008):
Acceptance Rate: ~50%
Proceedings: Full Paper

HICSS is an expensive conference to go to - Hawaii in January! Its a great vacation if you stay for a couple of days after the conference. Good thing about HICSS is that the atmosphere is quite casual (think shorts and printed shirts), stress free and discussion oriented. Some tracks in HICSS are well established and very well attended. One really bright part of the conference is the Competitive Strategy, Economics and IS mini-track organized by three leading lights of IS research - Rob Kauffman, Eric Clemons and Rajiv Dewan. This track has low acceptance, really good papers and very good participation.

WISE - Workshop on Information Systems and Economics (Link to WISE 2006):
Acceptance Rate: ~30% (guesstimate)
Proceedings: No Proceedings

For researchers studying Information Economics or Business Value of IT, this is THE place to be. Its a two day workshop where all the big guns get together and have a really good critical discussion. Its a short, interactive and very valuable workshop. This also happens to be my first ever research conference - so I like it even better. You only submit a five page extended abstract to WISE - so you can submit in-progress research as well - which is great. This also has one of the last deadlines (early Sept) - so you can submit your summer work here - good timing. WISE is one of the many workshops that happen just before ICIS (pre-ICIS workshops) - and it is usually very close to ICIS location - so you can combine the two visits.

Academy of Management - OCIS Division (Link to AoM-2007):
Acceptance Rate: ~50%
Proceedings: Abstracts and Extended Abstracts

Academy is the biggest gathering of all - all management divisions are there. Information Systems researcher usually find place in the OCIS division. I haven't been to this conference as yet - so no first hand information - I am scheduled to go this year - so I will know more soon. The acceptance rates are reasonable and it only publishes abstracts or extended abstracts - so works well for in-progress research papers.

CIST - INFORMS Conference on Information Systems and Technology (Link to CIST 2007):
Acceptance Rate: ~30% (guesstimate)
Proceedings: No Proceedings

The annual INFORMS conference is a big deal (and a big gathering) for Operations researchers. As part of the INFORMS conference, IS researchers organize the two day WISE-like event called CIST. Difference is that you need to submit a full paper for CIST. The level of discussion and participation is same as WISE. A very good conference to present your research before you submit it to a journal, especially for research connected with operations management. CIST also has some practitioner participation.

WITS - Workshop on Information Technology and Systems (Link to WITS 2007):
Acceptance Rate: ~30% (guesstimate)
Proceedings: No Proceedings

WITS is another pre-ICIS workshop - but its focus is more technical than WISE. Design science researchers find this particularly attractive. My research usually does not fall under the WITS umbrella - I have heard good things about it though.

Alright - that finishes my top of the mind info in research conferences/workshops in Information Systems. Hope somebody finds this useful. Feel free to add to this info by posting comments.

Updates:

Prof Don Harter at Syracuse has maintained a page on IS Conferences with links to past conferences. Link to Don's Conferences Page.

H-1B, International Students and US Auto Industry

2007-04-22T16:03:00.000-04:00

H-1B Visas: Problems All Around
Its old news that this year the annual quota for H-1B visas filled twice over in just two days (Link to CNN story). This has given rise to all kinds of discussion on whether H-1B cap should be raised; whether H-1B should even exist and what effect does H-1B has on wage levels in US. There is a bipartisan bill on table in congress that is expected to make matters worse.

Among all the noise, there is one group of people who are finding themselves in the middle of the crossfire - International students in US Universities. The H-1B visas are no longer available for students who will graduate at the end of the current academic year. Most of them have job offers with US companies, provided that they are get their H-1B visa. This really is a double whammy for them - first of all - employment opportunities for international students are severely limited in US. Here in Ross School of Business, University of Michigan, during the past internship season for the MBA class of 2008, only 255 of the total 490 job listings accepted applications from international students. On top of that, even these jobs are in jeopardy because of visa restrictions. Just to be sure - these are students from one of the top MBA programs in the world and any country/company should welcome them with open arms as they will script the future of the business world tomorrow - and here they are rebuffed and rejected.

Increasingly US universities are looking abroad to get qualified students. In most top MBA programs, international students make up more than one third of the student body. These students pay higher out of state tuition and take huge loans (more than $120K) and are willing to legally pay taxes and contribute to the US society and economy - there is no reason to not allow them to work and prosper in US.

Update: International PhD students that take up a job with a US University are not counted as part of the usual H-1B limit. This is good news for all aspiring faculty members like me! (More information available at Carnegie Mellon's excellent page on the subject.)

US Competitiveness: Auto Industry

Already many people including Bill Gates and Harvard Crimson have raised their voices. Bloggers have even suggested that restricting companies from hiring foreign workers will actually lead them to go to the source of talent and outsource more work. In the middle of these, New York Times has written an excellent piece on increasing skill levels of outsourcing firms in India. Combine this with excellent engineering innovation like the sub-$2,500 car I mentioned in my last post - and the indicators are not good for long term competitiveness of the US economy.

If someone really needs some hard data after all this, here are the latest automobile sales figures for US market for March 2007 (market share means share among the producers mentions, not total market share, sales mean unit sales not dollar sales). Look at how the Detroit Three are doing against the Asian Three:

Since I live in Michigan, the auto industry is always top of the mind - and the figures above are so disappointing for any true fan of Detroit's auto history. Not only are GM, Ford and Chrysler losing market share, they are doing worse even in their supposedly strong area - trucks and SUVs. In cars its not even a competition anymore - its a rout! Toyota is already the largest car maker in US and is third if we include both cars and trucks. With gas prices and emission requirements pushing the market towards smaller and more efficient Toyotas and Hondas, its only a matter of time before Toyota and Honda take the leadership position in US auto market from GM and Ford.

Toyota and Honda are both excellent value with forward PE in 13.50 range. I own Honda as I am slightly concerned with Toyota's ability to sustain growth with the large base that it has. Plus I expect Honda to take back the green leadership that it seems to have lost to Toyota Prius.

Giving Up on LaTeX

2007-04-21T09:56:00.000-04:00

I am a huge fan of LaTeX (especially on Emacs). I love the output generated by LaTeX and I would have been so happy continuing to write my research papers and dissertation in LaTeX - but alas - that is not to be. First of all, Information Systems research conferences ask for submission in MS-Word format - no exception. Secondly, now that I am handling large numbers of references and a huge pdf document library for my dissertation, I can not escape using EndNote for managing references - and EndNote does not support LaTeX.

So finally, I am giving up on LaTeX and shifting all my writing to MS-Word. I would continue to keep my LaTeX skills updated though - with the hope that once I graduate and (hopefully) become a faculty - I will perhaps be able to migrate back to LaTeX.

Sidenote: EndNote is amazing! I recommend EndNote to all researchers and especially doctoral students who are building their research paper library. It has helped my research productivity big time.

Wind Energy Continues to Power India

2007-04-20T13:03:00.000-04:00

I had written before about the growing wind energy capacity in India (Link: Wind Energy Powering India). Wind energy has continued to expand at a phenomenal pace in India. In year 2006, wind energy capacity in India increased by 41.5% amounting to 1,840 MW of new capacity. India was third in the world in new capacity additions (after US and China) and fourth in the world in total installed capacity (after Germany, Spain and US). The table below shows the distribution of installed wind power capacity in the leading countries:

Fast growth in US was expected because of recent tax concessions and the large suitable area and energy demand. China's emergence as the second largest capacity addition in 2006 is more of a surprise. Till few years back China did not really cared about alternative energy. China's ability to quickly ramp up is admirable though.

Things are moving in the right direction. Wind energy is the cleanest renewable energy source available and even though it had problems of high capital cost and non-optimal load distribution, its good to see rapid growth in wind energy capacity. This is one positive impact of the rise in oil prices - the renewable energy sources are now looking more and more attracting in comparison. I will continue to follow growth in wind and other renewable energy resources.

AMCIS 2007 and AMCIS Doctoral Consortium

2007-04-20T11:43:00.000-04:00

My papers have been accepted at both the AMCIS (Americas Conference on Information Systems) 2007 conference as well as AMCIS 2007 Doctoral Consortium. Its great news - a good start to the conference and job hunting season. The papers accepted and their abstracts are below:

Impact of Service Oriented Architecture Adoption on Electronic Supply Chain Performance

Service Oriented Architecture (“SOA”) has been viewed as a strategic approach to IT that provides increased flexibility. However, there is scant research evidence of SOA adoption leading to tangible performance benefits across a cross section of firms. We fill this research gap by empirically analyzing the impact of SOA adoption on the performance of electronic supply chains for a cross section of large US firms. We estimates the moderating impact of SOA adoption on relationships between supply chain performance and complexity and transparency of information sharing relationship between firms and their suppliers. Our results show that while SOA adoption mitigates the negative effects of information sharing complexity, it also reduces the positive benefits of information sharing transparency. Thus while SOA adoption can lead to potential improvements in performance, the extent of the benefit depends on characteristics of the information sharing relationship.

Bank of One: Empirical Analysis of Peer-to-Peer Financial Marketplaces

Peer to peer financial marketplaces provide a platform for individual lenders and borrowers to interact and transact. These marketplaces dis-intermediate the traditional financial services business models. In this exploratory paper we study the operation and effectiveness of one such marketplace: Prosper.com. We analyze six months of lender, borrower and loan repayment data to answer preliminary research questions about lender behavior, market effectiveness and antecedents of loan default. We show that lenders mostly behave rationally and charge appropriate risk premiums for antecedents of loan default. We also show that there are mismatches between risk premiums charged and relative importance of factors that drive loan default. We then explore the dynamic process of lenders adjusting their lending strategies to reduce these mismatches. Interestingly, our results indicate that the group reputation used in marketplace is not effective and needs to be enhanced. Our analysis provides a base for future research in this exciting and evolving context. Our results provide directions for practice applications as well as future research in design of financial marketplaces, investing and risk mitigation strategies and improving effectiveness of financial marketplaces.

AMCIS 2007 is in Keystone, Colarado from August 9-12, 2007.

Cricket World Cup - Billions Lost, Billions Devastated, One Silver Lining

2007-04-13T12:10:00.000-04:00

Cricket World Cup 2007

The cricket world cup is going on in West Indies. Till now it has been a disaster - India and Pakistan, with a combined population of 1.2 billion and a cricket media market worth many billions went out of the contention in the first round itself. Billions of dollars were lost, billions of people were utterly devastated (for those who know the influence of cricket on lives of ordinary Indians and Pakistanis - they know how deep the hurt it) and the Pakistan team coach was even murdered.

Within all this turmoil, the Sri Lankan team has emerged as a bright silver lining. The small island country of 20 million or so with a deeply unstable political and social environment has produced a team that is holding the Asian flag high. The team itself is so unorthodox and quaint - it even has three players that won the world cup 11 years ago!! In the age of world's fascination with youth and everything skin deep, they bring a depth of skill that gives you reason to continue believing. Mukul Kesavan has captured the essence of Sri Lankan team in his blog on CricInfo. The blog post and the ensuing discussion is highly recommended for all with any interest in cricket.

Group Reputation System at Prosper.com - II

2007-04-11T13:11:00.000-04:00

My last post on the group reputation system at Prosper.com focussed on the effectiveness of the system. Since then I have continued my research on the same and will likely deploy a survey to group leaders in next couple of months to test my hypotheses.

There has been a lot of research recently on online reputation systems like the ones used at eBay and Amazon. There are some important differences between the "individual" reputation systems at eBay etc and the group reputation system at Prosper.

Seller Only Reputation: First of all, Prosper's reputation system is essentially a seller reputation system. Buyers do not need to prove their reputation as they bear all the risk (since they pay money upfront). This is a key difference compared to eBay where the reputation system includes both buyer as well as seller transactions.
Credit Scores: While the reputation system is the ONLY window to a seller's reliability in eBay; in Propser, buyers have access to the credit history of sellers - which gives them all sorts of information to judge seller's reliability. So the reputation system here is of only incremental importance over and above the information available in the credit history. The group reputation system is essentially as secondary reputation system with the credit score being the primary reputation system.
No Repeat Transactions: Unlike eBay and Amazon, sellers at Prosper rarely conduct repeat transactions (second, third loan). Since the sellers are unlikely to come back to the market, their incentive for keeping a great reputation in the market is quite low. Hence, there needs to be factors beyond the marketplace to force them into complying with buyer's expectations.
Group's Core Connection: Prosper expects that if sellers are part of a tightly knit group then there would be peer pressure from the group for the seller to behave nicely. However, this would only be true if the group has a strong core connection (whether offline or online) which has some value to the seller. Currently most groups in Prosper do not have a core connection - they are just an online group of people with similar needs. This is unlikely to lead to good behavior by sellers and we have seen the evidence of same in the repayment data.
Filtering by Groups: Prosper also expects the group to be a filtering mechanism where group leaders check the listings and only let trustworthy borrowers come to the market. However, many groups do not even enforce the mandatory review of the listing by the group leaders - so even this expectation is futile.
Conclusions: Based on the above - we come to the following conclusion:

Groups that share a strong core connection (offline or online) would perform better
Groups that have a strong process for filtering listings would perform better

We have refined the conclusions above to generate research hypotheses and are testing these hypotheses using forthcoming survey data and data collected from Prosper. I will post the results once the analysis is done in next couple of months.

Links

1. Thanks are due to Prosperous PF Strategies for leaving a thoughtful comment. Link to the comment.
2. Rate Ladder is an excellent resource for Prosper participants. It is a little cluttered with ads - but has great information.

Asimov's "The Last Question"

2007-03-29T17:22:00.000-04:00

Asimov - Science Fiction

Since I can remember I have been a fan of Asimov's Science Fiction. The Foundation series is my absolute favorite. Asimov, however, was at his best when writing short stories. These short stories are "short" on length but incredibly complex and full of implications for matters as broad as religion, God, evolution and decline of civilization and so on... I consider "Nightfall" his second best work with an ending that takes your breath away - gives you goosebumps! But I reserve the title of best Asimov work ever to "The Last Question". It packs such a powerful punch in just one sentence in the end that you keep pondering over it for long after you have read the story. Its so completely incredible and yet so feasible...

Now - some good soul has done us all a favor and put "The Last Question" online for all to read. If you have not read it as yet then you are in for a time of your life. Enjoy - here is the link.

I could not find an online version of "Nightfall". If you know where I can find it - please do let me know.

Research Update

This year is turning out to be a great year. Another paper of mine titled "Collaboration Network Structure in Open Source Software Projects" has been accepted for presentation at the 5th AIS SIGSAND Symposium on Research in System Analysis and Design to held on May 12-13, 2007 in Tulsa, Oklahoma. Here is the abstract of the paper:

Collaboration Network Structure in Open Source Software Projects

Abstract

In this study, we view open source development teams as social collaboration networks of developers. By integrating theories and methods from social network, software engineering and organizational behavior studies, we examined the collaboration network structure of ongoing open source projects and the impact of the network structure on open source developer productivity. With development data from SourceForge.net, we found that open source developers, like their counterparts in traditional software development setting, have the tendency to use larger and less centralized collaboration network structure to tackle more difficult projects. However, such collaboration structure is associated with lower developer productivity. Our findings indicate that OSS practitioners still need to deliberately manage collaboration structure of the development teams to enhance productivity.

This research is co-authored with Ning Nan (University of Oklahoma) and Li Wang (Ross, Michigan). As usual, a copy of the paper is available on request.

Lastly, Thank you Miron for linking to my blog.

Research Mentioned in SmartMoney; Paper Accepted at Academy

2007-03-15T14:13:00.000-04:00

Today is turning into a pretty nice day. First, I checked the current copy of the SmartMoney, the magazine of the Wall Street Journal, and saw that it referred to my research on peer to peer financial marketplaces in one of the articles. Second, I heard back from the Academy of Management Conference and one of my papers have been accepted for presentation there.

The current issues of SmartMoney has an article on Prosper.com titled "The Banker Next Door" by Ann Kadet. She quotes my research in the article. I am quoting the article below:

As a whole, Prosper's lender community is still more subject to irrational whims and emotional behavior than professional credit analysts. Sanjeev Kumar, a doctoral student at the University of Michigan's Ross School of Business, analyzed six months of Prosper activity and found that quantitative data such as credit scores and borrower income explain just a third of bidding behavior. "Everything else is subjective, like whether there is a photo of the kids", he says.

Here is the link to the original article: Banker Next Door.

Now the other good news. Academy of Management is the largest association of management researchers and professionals. The Annual Meeting of Academy is one of the largest gathering of management researchers. It would be a great experience to present in the Academy 2007 conference. The paper accepted is titled: Embedded Trust in Open Source Software Development Communities. Following is the abstract of the paper:

Embedded Trust in Open Source Software Development Communities

Abstract

Structure of naturally evolving collaborative relationships in open source software (OSS) development communities has been identified as a critical factor in success of OSS projects. This study attempts to extend the literature by examining impacts of collaborative relationship structures on trust, an important yet under researched construct in the OSS context. Based on social network and organizational theories, this study proposes that collaboration network structures have significant effects on individual OSS developer’s trust in a project team. Subsequently, we expect that trust has positive effects on effectiveness of an OSS development community. Empirical analysis of project and survey data using partial least square (PLS) verifies that collaboration network structures significantly affect trust, which subsequently enhances OSS team effectiveness in terms of perceived software quality, team cohesiveness and satisfaction with the teamwork. Results of this study shed light on the antecedents and relevance of embedded trust in OSS communities with significant implications for both researchers and practitioners.

This year has started well - I attended the first conference of the year and my paper got accepted at the first paper submission of the year. I hope the luck is continue for the rest of the year as this is my job market year. Talking of jobs - I finally finished writing my academic Vita.

I also got the full student feedback for the course I taught in Spring 2006. Here is the feedback image from the evaluation website:

Quite Nice, Huh?

Group Reputation System at Prosper.com

2007-03-12T22:05:00.000-04:00

Continuing my data analysis pieces on Prosper.com (click here for all my posts regarding Prosper), I am looking at the group rating system in this post (using the more academic term - Group Reputation Systems).

Prosper introduced the rating system a few months back. Borrower's have the option of being part of a group and groups are given a star rating (1 star to 5 star) based on the repaying history of past loans originated from the group. More details are available on Propser's page. Now, the first thing which is clear to anyone with any experience lending on Prosper is that this group reputation system is broken - it does not work! In this post I will first provide "empirical evidence" (fancy research term for a statistically tested argument) that the group reputation system is not working and then I will discuss reasons why this is so and how can this be fixed.

Effectiveness of Prosper's Group Reputation System

The essential idea is the groups will keep tabs on their member borrowers resulting in lower default rates for good groups. This will lead to lenders charging lower interest rates (lower risk premiums) for borrowers belonging to these better groups, providing incentives for borrowers to be part of these groups. A nice virtuous cycle. Now, lets look at some numbers and see if this cycle is in fact working:

The image below is a screenshot from Prosper of interest rates for last 30 days. Look at differences between interest rates for borrowers belonging to a group and those not.

As we expect, for most categories interest rates for group members are below those for non group members. This is good - the system is mostly working for the borrowers. However, there are many categories where the system breaks down and non members in fact get better rates (for example: AA for loans between 5K and 10K).

Now lets see if the system is working for lenders. I can't divulge all the details here as its part of a research paper that is under review - but this is essentially what I did. I collected six months of listing information and the loan repayment information for all resulting loans. Then I analyzed this data to discover the factors that are antecedents of loan default - factors that drive loan default. The analysis was done using something called a duration model (also known as survival analysis). This statistical technique is widely used to model failure events where time to failure is known. Failure in our case is of course a loan default. Duration models output hazard ratio, which is an estimate of the relative risk of failure resulting from the factors included in the model. A hazard ratio greater than 1 would mean that the risk of failure increases with the factor. In my preliminary models the hazard ratio for group membership came out well above 1. This means that the risk of default is actually higher for borrowers that belong to a group! So as far as lenders are concerned - the group system completely does not work.

The duration model of loan defaults also uncovers some interesting results.

The Debt to Income ratios of borrowers seem to have no impact on the risk of loan default
Amount of information provided in listing description (on an overall description length basis) has no impact on the risk of loan default
Being a homeowner also does nothing to the risk of loan default
Listings with endorsements from group leaders seem to have a lower risk of loan default

I will provide more details of this analysis as the paper passes through the review process and I finalize my dissertation.

Whats the Problem?

This is a topic for future post. There has been extensive academic research on reputation systems in past years - I will borrow from those and analyze Prosper's reputation system in that light.

GMAT Preparation?

One of my long time friendshas started this wonderful online service to help students preparing for GMAT. Look up his site WinGMAT.com. I have looked through the contents of the site and they are good, quite good!

Prosper.com Data Analysis

2007-03-11T15:05:00.000-04:00

I have not posted anything here for a while as I have been busy trying to give shape to my dissertation. As part of my research I have been working with Lending, Borrowing and Loan Repayment Data at Prosper.com and there are some pretty neat results. I finished writing an article about my results and submitted it to one of the major Information Systems conferences AMCIS (Americas Conference on Information Systems) for review. I of course can not detail all the results here as it is under review, here is the abstract of the paper I submitted:

Bank of One: Empirical Analysis of Peer-to-Peer Financial Marketplaces

Peer to peer financial marketplaces provide a platform for individual lenders and borrowers to interact and transact. These marketplaces dis-intermediate the traditional financial services business models. In this exploratory paper we study the operation and effectiveness of one such marketplace: Prosper.com. We analyze six months of lender, borrower and loan repayment data to answer preliminary research questions about lender behavior, market effectiveness and antecedents of loan default. We show that lenders mostly behave rationally and charge appropriate risk premiums for antecedents of loan default. We also show that there are mismatches between risk premiums charged and relative importance of factors that drive loan default. We then explore the dynamic process of lenders adjusting their lending strategies to reduce these mismatches. Interestingly, our results indicate that the group reputation used in marketplace is not effective and needs to be enhanced. Our analysis provides a base for future research in this exciting and evolving context. Our results provide directions for practice applications as well as future research in design of financial marketplaces, investing and risk mitigation strategies and improving effectiveness of financial marketplaces.

I am excited about my research on Prosper.com (or Peer to Peer Financial Marketplaces - the name I have given to the broader phenomenon). I am continuing to enhance my analysis and looking for improving my paper and submitting to a top journal. If you would like to read a copy of my paper then pls drop a comment with your email and I will send one to you.

It seems my research will be quoted in the SmartMoney Magazine. Ann Kadet, who is a columnist and Senior Editor with the magazine got in touch with me about my research on Prosper.com. The coming issue of SmartMoney will have an article on Prosper.com and according to Ann, there will be a mention of my work. Cool...

Portfolio Update

Like everyone else, my stock portfolio also took a hit in last two weeks with the sharp decline in US markets. Although, I continue to believe that in the medium term stocks are worth keeping - so I used the drop to add to my holdings and I have now mostly recovered. My current major holdings are (in order of size of holding): STX, AMD, TTM, TNE, UL, FTE, SCSS, CX, CAT, IBN, TTMI, HMC and TKC. As you can see - I have diversified considerably - I now have large technology MNCs, Indian Auto, Brazilian Telecom, Mexican Cement, Consumer Goods, Global Auto, Turkish Telecom and some good old US companies in my portfolio... Before the Feb end decline, I had booked profits to the tune of some 16% return - not bad for a two month period.

Research Update

Since I wrote last one of my papers was nominated for the best paper award at HICSS 2007 (Hawaii International Conference on Systems Sciences). The paper is available here. I have further improved this paper and it is now going to be a part of my dissertation.

Evolution of Business Process Outsourcing

2006-12-04T14:11:00.000-05:00

Business Process Outsourcing (BPO) has been on a center of a lot of debate and controversy. However, the fact remains that it is here to stay, it will continue to grow and it benefits both sides. Important thing to note through is that the nature of BPO and hence the potential benefits of BPO as well as the capabilities needed to successfully compete in the BPO marketplace have evolved significantly in past few years. This evolving nature of BPO and associated issues have been part of my recent research focus. Here is one picture that explains my view of the evolution of BPO:

Figure: Evolution of Business Process Outsourcing

The figure above says many things - so needs a little explanation. The left axis represents the main driver of BPO in a particular BPO evolution stage. The right axis represents the ideal role that a vendor should play (or a client should establish) for a BPO evolution stage. The x axis represents the three stages of evolution of BPO. The main body of the graph depicts the core activity or work that is outsourced for a BPO evolution stage. This framework was presented by Prof M S Krishnan (my doctoral advisor and dissertation chair) at the Global BPO Forum organized by the CGRL:India in New York. Prof Krishnan and I both attended the forum.

This framework is helpful in understanding the future direction of BPO. We will increasingly be moving towards the third generation BPO - BPO 3.0 - high value added, knowledge intensive BPO work. This will require vendors to change their focus from cost (predominant focus right now) and quality (emerging focus among top players) to innovation. Clients, on their side, would need to make sure that they do not use the old and outdated mechanisms (efficiency oriented SLAs, restricted collaboration...) to engage with their vendors. They will have to enter into strategic partnership with their BPO vendors to co-create value for both sides of the transaction. This is of course easier said than done - but there are many leading indicators to suggest that this is happening and growing. We (as in researchers at Ross, Michigan) have documented instances of BPO 3.0 in our case studies, analyzed them in our ongoing research and I plan to investigate this phenomenon further in my dissertation.

From a research point of view, the most interesting question to be asked is: on a broad level, what are the antecedents of a successful BPO 3.0 engagement? What kind of contracting, engagement structuring, engagement monitoring, HR policies, process selection etc needs to be done to leverage the "innovation" aspect of BPO 3.0. BPO vendors and clients have more of less perfected the art of an "efficient" BPO engagement with main focus on cost reduction. Many have acquired sufficient mastery over running an "effective" BPO operation with main focus on quality improvement. However, based on my interactions, most companies are still looking for directions on how to successfully leverage an "innovation" oriented BPO engagement where an efficiency or effective oriented policies might not only be ineffective, they may even be critically detrimental to the success of the engagement. I hope to throw more light on the subject through my ongoing dissertation research.

To end, an image I have found quite effective in breaking the ice when teaching any BPO related topic:

Prosper Growth and Credit Quality

2006-12-01T17:25:00.000-05:00

This is the third article in a series of data analysis pieces I have written on Prosper.com. Links to my previous two articles are there at the end of this article, in case you want to dig deeper. Okay - so what am I saying here? As would be clear to anyone who has read my previous posts, I like data and I like visual representation of data. So here are three charts and what we can infer from these charts. All these charts are drawn on a monthly sampling basis for 10 months from Feb 2006 to Nov 2006. I am starting my analysis from Feb as the Prosper's size before Feb was quite minuscule and not really comparable. All data is from Prosper's Lending Performance page. It takes a while to retrieve all this data but its all publicly available.

Chart 1: Growth of Prosper

This is a chart of dollar value of loan's originated every month from Feb 2006 through Nov 2006.
Two things are obvious from the chart. First - Prosper's growth has been phenomenon. It has grown from half a million dollars of loans per month to more than three million dollars of loans per month in less than a year. Second - the growth has levelled out in last three months - in fact it the loan volume declined in Sep and Nov. Whats going on? My read of the situation is that in Aug Prosper received some good media coverage and it lead to an influx of borrowers and lenders leading to a huge spike in Aug. However, this spike also meant a decline in quality of loans - more loans of lower quality got funded. Prosper then clamped down on its verification process and started rejecting some loans (even when they got funded). Further, some lenders who got burnt after lending indiscriminately in June-July-Aug tightened their belts. Both these combined to reduce volume of loans in following months. However, the long term uptrend is very much intact and we should see continuing growth in Prosper's loan volume.

This loan volume also gives us a fair idea of how much money Prosper might be making. Lets assume an monthly loan volume of 4 million dollars per month and all repayments being reinvested. Prosper charges 1% of loan amount from borrowers - so that makes $0.48 million a year. Further, Prosper charges 0.5% of outstanding loan principal from lenders - so that makes $0.24 million. So a total of $0.72 million. Prosper will also make some money from interest (it does not pay any interest to lenders with free cash in their Prosper account), some from fees etc - so may be we are looking at $0.75 million per year. Lets say that in three years (I guess venture caps will stand by you for that long before pulling the plug) Prosper grows to be ~$40 million per month - not too outlandish considering past growth rates. Then Prosper will be making $7.5 million per year. Now - its not too big an amount but remember that running costs for Prosper is quite low - it does very little advertising, it employs few (maybe 20-25) people and it doesn't cost much to have servers and the site running. Combine this with potential for rapid scaling up and perhaps cross selling and other revenue sources and you are looking at a sustainable, profitable business here.

Chart 2: Distribution of Prosper Loans across Credit Grades

The chart below shows distribution of Prosper loans across credit grades for loans originated in every month from Feb through Nov 2006. The chart is a little busy - so look at the attached table to make sense of the graph.

You can see that the composition of Prosper loans has changed significantly since Feb. Initially AA and A credit category used to be quite big - more than 20% each of total loan amounts in Mar. However, over time, their proportion came down and by Nov - they were barely 20% of total loans combined. This declined has happened because of the increase of share of E and HR category loans. They combined for ~14% of loans in Feb but by Nov, E category alone claimed higher than 14% of total loan amount. B, C and D credit grades have mostly held their ground over the period. So what can we infer from this? Perhaps lenders have become more open to funding low credit loans after previous good experience with them. This is unlikely because except D, all other low credit category has performed miserably. Perhaps word has gotten out that Prosper is a good and affordable source of credit for low credit borrowers and many people with payday loans and such are not coming to Prosper in droves and hence the increase in E and HR category borrowers on Prosper - this is quite possible. There may be other explanations as well. Let me know if you have a different opinion.

Chart 3: Reduction in Credit Quality at Prosper

This is a followup of the previous chart. I thought - well - loan composition is changing - so lets see how the average loan profile is changing over these months. So I created a simple index of credit quality. Under this index - a loan with credit AA has an index of 0, A has an index of 1 and so on till HR has an index of 6. Then I take a weighted average of all loans for the month to calculate a credit quality index for the month. By definition, this index will be between 0 to 6 and higher number will mean lower average credit quality. So how has this average credit quality index changed in past months - here is the chart:

Its clear from the chart that the average quality of credit at Prosper is declining - rather sharply. In Feb and Mar, average credit quality was less than 2.5 - that is - a credit rating better than middle of B and C. It has now changed to higher than 3 - that is - a credit rating worse than C on average. It seems to have stabilized after July to a 3-3.25 level. It will be interesting to see how this develops in coming months.

I must post a disclaimer that this is still early days for Prosper and its numbers have not really stabilized - so reading too much into overall trends may not be accurate. So lets continue to watch Prosper and see what direction all these numbers are taking. I will be updating the above analysis every month or so and post updates on this blog.

In case you are interested in my previous two data analysis pieces on Prosper - here are the links:

Wind Energy Powering India

2006-11-25T11:04:00.000-05:00

I have written before about growing wind power capacity in India and also leadership roles of Indian wind power companies like Suzlon. Since that post in April 2006, the growth has only accelerated. Here are the numbers updated up to June 2006 (source).

Figure: Wind Power Capacity in June 2006

Growth of wind power in India is quite remarkable. In fact, preliminary sources indicates that wind power capacity has reached 6018 MW in India as of Sept 2006. The wind power story is now getting attention of popular press as well. Following is an excerpt from the article in New York Times:

Suzlon has expanded rapidly as global demand for wind energy has taken off. Its sales and earnings tripled in the quarter ended June 30, as the company earned the equivalent of $41.6 million on sales of $202.4 million.

The demand for wind turbines has particularly accelerated in India, where installations rose nearly 48 percent last year, and in China, where they rose 65 percent, although from a lower base. Wind farms are starting to dot the coastline of east-central China and the southern tip of India, as well as scattered mesas and hills across central India and even Inner Mongolia.

As oil prices stay high, renewable energy sources are becoming more competitive. For this reason, I am not too concerned about oil reaches $100 or beyond - that will only be helpful in the long run as it will focus our attention on developing renewable energy sources like Wind.

Borrower Selection on Prosper.com

2006-11-24T09:53:00.000-05:00

In my last post on borrower selection at Prosper.com, I emphasized drilling into the delinquencies data that Prosper.com provides. It was in response to StingyJoe's question in his excellent blog - StingyFinance. StingyJoe was kind enough to put a link to my post on his blog post. I am continuing the chain of thought and detailing various kinds of data exploration you can do and helpful insights that you can gather.

If you are a member if Prosper, then you can access all the data on the Lending -> Performance page. You can change performance criteria and see the impact on default rates. Here are the results of my dabbling with this page (all these results are for loans originating between July 1 to Oct 20).

Rules for Investing in Prosper - II

There is a sweet spot: Most people believe that one should focus only on really high credit borrowers (AA, A and B rated) on Prosper because risks are too high. However, when you go with AA and A borrowers, you are likely to get an interest rate of 8-10% - not too different from what you could get from a CD with minimal risk. I believe that there is a sweet spot in the middle where interest rates are high and risk is lower than the reward. For me - this sweet spot is credit rating D. Look at default rates by different credit ratings:

Credit Rating---AA---A----B----C----D----E----HR---Overall
Default Rate(%) 0.00 0.59 1.05 2.72 0.67 4.38 6.28 2.36

Look at the amazing performance of D credit - its almost reaching levels of A rated borrowers. You can get an interest rates of 18-22% for a D borrower and for the performance shown above - it is a bargain. That's why if you look at my portfolio in Prosper - you will find that D borrowers have the biggest claim on my money. Look at the screenshot of my portfolio at Prosper:

Figure: My Portfolio Distribution on Prosper.com

Past predicts the future: If a borrower is carrying multiple current delinquencies on their credit right now then their cost of adding one more to the list is quite low. However, if a borrower has zero current delinquencies, then they would be extra careful to cross over to one current DQs. So - if you want to play safe - lend only to borrowers that have zero current DQs. Lets see what is the performance of different credit ratings if we limit ourselves only to borrowers with zero current DQs.

Credit Rating---AA---A----B----C----D----E----HR---Overall
Default Rate(%) 0.00 0.38 0.57 2.28 0.00 0.53 4.73 0.79

Wow! Look at that. Compare this table to the table in the beginning and see the difference it makes when we limit ourselves to lending to borrowers with zero current DQs. Performance improves for all credit grades. Improvement is dramatic for D credit: Zero Defaults!! So if you are lending to D credit with no current DQs - you can sleep soundly at night - your money is not going anywhere while earning you a solid 15-18% interest.

Greed is bad: The whole idea behind Prosper is that lender will bid down the interest rate to the one that the market can support (an economist will call it price discovery). Why then would a borrower opt for "Automatic Funding" which essentially completes the transaction the moment the loan is fully funded without giving other lenders an opportunity to bid down the interest rate. Its completely irrational for a borrower to have automatic funding, and since my inner economist core strongly dislikes irrational behavior, I stay away from loans with automatic funding. Lets see what that does to performance of loans:

Credit Rating---AA---A----B----C----D----E----HR---Overall
Default Rate(%) 0.00 0.78 0.70 0.52 0.40 2.35 1.81 0.76

Again - using simple logic gives us phenomenal improvement in performance. My favorite D credit borrowers are again providing really good performance for comparatively lower risk.

Okay - so to summarize: if you are lending at Prosper.com - keep in mind the following: D credit borrowers are your best risk-reward bet at the moment, borrowers with zero current DQs are outperforming others by miles and finally - stay away from loans with automatic funding.

Hope all this is of help. As I look deeper into this data I will post updates to how to select the right borrower on Prosper.

Choosing the right borrower on Prosper.com

2006-11-23T11:38:00.000-05:00

This post is in response to a question by StingyJoe in reply to my comment on his article on Prosper.com on his excellent blog StingyFinance. He asked me what are the most important criteria for choosing who to lend to on Prosper. Here are the heuristics I have been using, and they have served me well till now.

Rules for Investing in Prosper

Start small and build incrementally: Prosper is right now a small site with total loans outstanding of around $23 million. While its growing rapidly (new loans of $2 million between Nov 1 and 21), there are so many lenders competing for good loans that it is really difficult to grow your portfolio while keeping a high interest rate. The "gems" (low credit risk with high interest rates) are few and far between. So do not think that you can lend out $20K in one month and remain profitable. Right now I think maybe 10 loans every week fit my risk-reward criteria and if you are bidding $50-$60 on every loan - you can loan at most $500-600 every week. Now, this may be too small for people with little free time who can't do the necessary research for such small investments. However - I recommend that before you put too much money - put a little first, build very gradually and then once you are comfortable, put more money in. I am also in favor of starting off with manual order and using automated standing orders only after 5-6 months of getting to know this market.

Wait for the 4 month shock: The Lender's Forum at Prosper is abuzz with lenders who see a spike in delinquencies about 3-4 months after the loan originates. Basically it takes that much time for the excess liquidity of a new loan to die and some borrowers to fall again in financial difficulties. Some data to prove my point:

When looking at all loans that started between Jul 20 and Aug 20 (its Nov 22 today, so a loan life of 3 months), default rates are 4.63%. If we look for all loans that started between Jun 20 and Jul 20 (loan life of 4 months) 6.19%. The same figure for 5 months loan life is 7.98%, 6 months loan life has the figure 12.29%. Compare these to default rates of 1.29% for 2 months loan life. So clearly, if you have not had defaults on your first two months, do not consider yourself a Prosper genius and start pouring money. Wait for the 4-5 month default deluge - see how you are performing against the market and then, if you are comfortable, increase your exposure.

One should also note that historic default rates in Prosper (12.29%!! for 6 month old loans) is huge! So build that into your expectations. Just because you are lending at 20% rate does not mean that you will have 20% return. Expect something like 8-10% and you should not be disappointed. I personally think that with careful borrower selection a 15% return is possible and thats what I am shooting for but I know the risks and I would be happy if I am making 8% at the end of it.

Know your data, love your data: Good thing about Prosper is that all (most?) its information is online and available for your to see. For example: I can check default rates for all kinds of combinations of borrower characteristics (Credit grade D but no current defaults is my current favorite) and decide my bidding strategy. For example: if you limit yourself to bidding only on borrowers with no current delinquencies, your overall default rate at 4 month loan age is only 0.34% (compared to 6.19% overall). So if you stuck only with borrowers who do not have a current delinquency in their credit file, you would have way way lower defaults. There are several other ways to slice and dice the data and you should spend enough sleepless nights on the computer to *really* know that data. This is the key to succeeding in this market.

Groups don't matter, Group Leaders do: Most groups on Prosper are "zero-value-add" but a few groups have committed group leaders who make a difference. Over past few months, I have recognized some groups with capable group leaders including Texas Prosperers (I am a honorary member of this group even though I have never set foot in Texas) and Sonic Lenders. I am also impressed with DocProsper group and I *hate* this group.

Alright - now the disclaimers. I am a small investor and have only been with Prosper for a few months - so all my "insights" should be taken with a pinch of salt. I am putting my money where my mouth is - but it may not work for you. Also - all my insights may prove to be nothing if my loan portfolio starts backfiring and I am saddled with defaults. I will be posting updates to my Prosper portfolio here - so check back if you are interested in learning how my heuristics are faring.

Have a happy Thanksgiving and hope Notre Dame beats USC this Sat so that Michigan (Go Blue!) goes to the National Championship games and kicks Ohio State's behind! I can't believe I am cheering for Notre Dame!!

Update: I have posted a follow up of this article and its available at this link.

Cataloging my library

2006-11-20T14:16:00.000-05:00

I came across this really nice website that helps catalog personal libraries: LibraryThing. I always wanted something like these to keep a record of all the books I buy or read. I am slowly indexing all my books. You can check my library at this link.

The site also provides this wonderful widget to put in blogs. You can configure this widget to show many interesting things. Right now if you look on the right hand column of this blog - you will see a random selection of books from my library. You can click on them and that takes you to Amazon, where you can read about the book.

Idle ramblings of a wandering mind...

Closing This Blog

The New Age of Innovation

LaTeX - Love and Hate Continues

ICIS: International Conference on Information Systems 2007

Going to INFORMS CIST 2007, Seattle

Bank of One: Prosper.com

Crazy Pricing in Airlines Industry

How does Prosper.com Make Money?

Research Conferences in Information Systems

H-1B, International Students and US Auto Industry

Giving Up on LaTeX

Wind Energy *Continues* to Power India

AMCIS 2007 and AMCIS Doctoral Consortium

Cricket World Cup - Billions Lost, Billions Devastated, One Silver Lining

Group Reputation System at Prosper.com - II

Asimov's "The Last Question"

Research Mentioned in SmartMoney; Paper Accepted at Academy

Group Reputation System at Prosper.com

Prosper.com Data Analysis

Evolution of Business Process Outsourcing

Prosper Growth and Credit Quality

Wind Energy Powering India

Borrower Selection on Prosper.com

Choosing the right borrower on Prosper.com

Cataloging my library

Wind Energy Continues to Power India