Deadly Disease, Fear, and Ostracism in the Credit Market

This paper exploits the 2014 U.S. Ebola outbreak as a natural experiment to examine how fear distorts mortgage credit allocation. We find a 3.8-percentage-point increase in mortgage denial rates for Black applicants during the outbreak, despite negligible infection risk. Approved Black borrowers have stronger credit profiles and lower default rates, yet are less likely to receive loan modifications when delinquent. These effects are absent in algorithm-driven FinTech lending and reverse quickly postoutbreak—patterns inconsistent with statistical discrimination. Robustness tests rule out alternative explanations related to political cycles, labor market impacts, applicant pool composition changes, and bank financial conditions. Consistent with diagnostic expectation theory, higher exposure to Ebola fear does not result in a significant learning effect during the COVID-19 pandemic.

This paper was accepted by Bo Becker, finance.

Funding: S. Agarwal acknowledges the financial support from the National Natural Science Foundation of China [Grant 72495154]. Y. Lin gratefully acknowledges financial support from the NUS Research Grant [Grants A-8001725 and A-8004426]. R. Lu and X. Zhang acknowledge the financial support of the National Natural Science Foundation of China [Grants 71903005, 72402005, and 72472001].

Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2025.01919.