Impatience and Credit Behavior: Evidence from a Field Experiment

This paper tests whether heterogeneity of time preferences can explain individual credit behavior. In a field experiment targeting individuals from low-to-moderate income households, we measure individual time preferences through choice experiments, and then match these time preference measures to individual credit reports and annual tax returns. ; We find that, controlling for disposable income and other individual characteristics, individuals who are less patient have lower credit scores and higher default rates. Moreover, people with dynamically inconsistent (quasi-hyperbolic) preferences have higher active borrowing levels.

[1]  Roebuck,et al.  The impact of credit counseling on subsequent borrower credit usage and payment behavior , 2003 .

[2]  M. Rabin.  Risk Aversion and Expected Utility Theory: A Calibration Theorem , 2000 .

[3]  Dean S. Karlan,et al.  Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines , 2005 .

[4]  David Laibson,et al.  Estimating Discount Functions with Consumption Choices Over the Lifecycle , 2007 .

[5]  David B. Gross,et al.  Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data , 2000 .

[6]  Ted O’Donoghue,et al.  Doing It Now or Later , 1999 .

[7]  O. Bar‐Gill.  Seduction by Plastic , 2004 .

[8]  Jesse M. Shapiro.  Is There a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle , 2003 .

[9]  R. Thaler,et al.  THE BEHAVIORAL LIFE‐CYCLE HYPOTHESIS , 1988 .

[10]  M. Haliassos,et al.  Debt Revolvers for Self Control , 2001 .

[11]  Luis C. Corchón,et al.  Addiction and Cue-Triggered Decision Processes. , 2004, The American economic review.

[12]  Sendhil Mullainathan,et al.  A Behavioral-Economics View of Poverty , 2004 .

[13]  W. Mischel,et al.  Delay of gratification in children. , 1989, Science.

[14]  J. G. Hülsmann.  A theory of interest , 2002 .

[15]  M. Coller,et al.  Eliciting Individual Discount Rates , 1999 .

[16]  Drazen Prelec,et al.  The Red and the Black: Mental Accounting of Savings and Debt , 1998 .

[17]  Paul S. Calem,et al.  An overview of consumer data and credit reporting , 2003 .

[18]  R. Thaler.  Irving Fisher: Modern Behavioral Economist , 1997 .

[19]  Lawrence M. Ausubel,et al.  Time Inconsistency in the Credit Card Market , 2004 .

[20]  Glenn W. Harrison,et al.  Eliciting risk and time preferences using field experiments: Some methodological issues , 2006 .

[21]  Samuel M. McClure,et al.  Separate Neural Systems Value Immediate and Delayed Monetary Rewards , 2004, Science.

[22]  R. Pollak,et al.  SECOND-BEST NATIONAL SAVING AND GAME-EQUILIBRIUM GROWTH , 1980 .

[23]  Casey B. Mulligan,et al.  The Endogenous Determination of Time Preference , 1997 .

[24]  I. Fisher,et al.  The theory of interest , 1956 .

[25]  D. Fudenberg,et al.  A Dual Self Model of Impulse Control , 2004, The American economic review.

[26]  Morten I. Lau,et al.  Eliciting Risk and Time Preferences , 2008 .

[27]  Morten I. Lau,et al.  Estimating Individual Discount Rates in Denmark: A Field Experiment , 2002 .

[28]  Elizabeth Warren.  The Over-Consumption Myth and Other Tales of Economics, Law, and Morality , 2004 .

[29]  Arthur B. Kennickell,et al.  Recent changes in U.S. family finances: evidence from the 2001 and 2004 Survey of Consumer Finances , 2006 .

[30]  David I. Laibson,et al.  Golden Eggs and Hyperbolic Discounting , 1997 .

[31]  Robert Slonim,et al.  Patience among children , 2007 .

[32]  Vivian Zayas,et al.  Predicting Cognitive Control From Preschool to Late Adolescence and Young Adulthood , 2006, Psychological science.

[33]  E. Fehr.  Behavioural science: The economics of impatience , 2002, Nature.

[34]  Ernst Fehr.  The economics of impatience , 2003 .

[35]  N. Sicherman,et al.  Why Do Dancers Smoke? Smoking, Time Preference, and Wage Dynamics , 1999 .

[36]  B. Frey,et al.  TV Channels, Self Control and Happiness , 2006 .

[37]  G. Loewenstein,et al.  Time Discounting and Time Preference: A Critical Review , 2002 .

[38]  David Laibson,et al.  A Debt Puzzle , 2000, Knowledge, Information, and Expectations in Modern Macroeconomics.

[39]  Ulrike Malmendier,et al.  Paying Not to Go to the Gym , 2006 .

[40]  G. Loewenstein,et al.  Animal Spirits: Affective and Deliberative Processes in Economic Behavior , 2004 .

[41]  R. H. Strotz.  Myopia and Inconsistency in Dynamic Utility Maximization , 1955 .

[42]  Catherine C. Eckel,et al.  SAVING DECISIONS OF THE WORKING POOR: SHORT- AND LONG-TERM HORIZONS , 2005 .

[43]  R. Sauer,et al.  Doctors without Borders? Relicensing Requirements and Negative Selection in the Market for Physicians , 2002, Journal of Labor Economics.

[44]  P. Nelson,et al.  Another Experimental Look at Individual Time Preference , 1992 .