Present-Biased Preferences and Credit Card Borrowing

Meier, Stephan; Sprenger, Charles

doi:10.2139/ssrn.1412276

Cited by 24 publications

(3 citation statements)

References 59 publications

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“…This yields insights into some important real-life decision patterns: The typical bias toward the present is always at work when we break diets (short-term lure: enjoyment of unhealthy food; neglected long-term benefits: good health), postpone dental appointments (short-term lure: avoidance of looming pain; neglected long-term benefits: dental health), or accumulate credit card balances (short-term lure: the pleasures of shopping; neglected long-term benefits: saving money). In agreement with these intuitive examples, present bias and the degree of hyperbolicity during intertemporal choice have been associated with lifestyle-related chronic diseases (Sassi & Hurst, 2008), substance abuse and drug addiction (Bickel & Marsch, 2001; Bickel, Odum, & Madden, 1999; Kirby, Petry, & Bickel, 1999), problem gambling (Kalenscher, 2007; Madden, Petry, & Johnson, 2009; Petry & Casarella, 1999), credit card debt (Meier & Sprenger, 2009), default in microfinance (Anderson et al, 2004), financial illiteracy (Laibson, 1997; Meier & Sprenger, 2008), and poverty (Kurosaki & Kurita, 2009; Tanaka et al, 2006). The repercussions of these fundamental findings will be discussed in the next section.…”

Section: Intertemporal Choice and Health Insurancementioning

confidence: 72%

“…As a consequence, he may avoid going to a cake-selling café in the first place, and hence constrain his choice options by forestalling the opportunity to select the unfavorable, but tempting short-term offer. Precommitment seems to be an effective strategy to impose self-control not only on health- and dieting-related choices (Sassi & Hurst, 2008; Schwartz et al, 2014), but also to regulate financial decisions, such as saving for retirement, protecting oneself from spend-thrifting, and avoiding debt accumulation (Meier & Sprenger, 2008, 2009). Precommitment works as a policy implementation, too: It has been shown to substantially increase saving behavior of poor people in the Philippines (Ashraf et al, 2006) and increase private retirement provisions (Haynes, 2009).…”

Section: Individual Differences In Present Bias In the Developed And ...mentioning

confidence: 99%

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Attitude toward health insurance in developing countries from a decision-making perspective.

Kalenscher¹

2014

Journal of Neuroscience, Psychology, and Economics

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This article provides an analysis of the demand side of health insurance from a decision-making perspective. I will address in particular why take-up of affordable health insurance products in developing countries may be low despite their obvious benefits for the insurant. Without any doubt, (negative) attitudes toward the idea of health insurance are influenced by multiple factors and have their roots in financial, cultural, traditional, religious, cognitive, experiential, and other reasons. However, in this discussion article, I maintain that, in addition to these reasons, there are psychological causes explaining low insurance take-up that have so far been insufficiently considered in the literature and that have their roots in unfavorable decision-making patterns. Low take-up of health insurance can be partly explained by both a strong present bias when making decisions about the future, leading to difficulties to act in accordance with one's long-term interests, and the unreadiness to be part of a caring society of insurees when no direct benefit for the contributor or his close kin is immediately evident. Effective policies aimed at increasing the demand for insurance need to exploit and modify people's present-bias, and modulate and expand (perceived) group boundaries to foster cooperative attitudes to all members of the caring society, even if they are strangers.

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Section: Intertemporal Choice and Health Insurancementioning

confidence: 72%

Section: Individual Differences In Present Bias In the Developed And ...mentioning

confidence: 99%

Attitude toward health insurance in developing countries from a decision-making perspective.

Kalenscher¹

2014

Journal of Neuroscience, Psychology, and Economics

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“…10For example, Meier and Sprenger (2008) note that people who display more present bias in the lab also are more likely to carry large credit-card balances. Carpenter and Seki (2005) observe that conditional cooperation in a public-good game predicts group fishing productivity in Japan.…”

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confidence: 99%

Vaccination as personal public-good provision

Reddinger

Charness

Levine

2022

Preprint

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Vaccination has both private and public benefits. We ask whether social preferences—concerns for the well-being of other people—influence one’s decision regarding vaccination. We measure these social preferences for 549 online subjects: We give each subject $4 to play a public-good game and make contributions to public welfare. To the extent that one gets vaccinated out of concern for the health of others, contribution in this game is analogous to an individual’s decision to obtain vaccination. We collect COVID-19 vaccination history separately to avoid experimenter-demand effects. We find a strong result: Contribution in the public-good game is associated with greater demand to voluntarily receive a first dose, and thus also to vaccinate earlier. Compared to a subject who contributes nothing, one who contributes the maximum ($4) is 48% more likely to obtain a first dose voluntarily in the four-month period that we study (April through August 2021). People who are more pro-social are indeed more likely to take a voluntary COVID-19 vaccination.

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Exponential Growth Bias and Household Finance

Stango¹,

Zinman

2009

The Journal of Finance

575

151

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Exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively. We show that exponential growth bias can explain two stylized facts in household finance: the tendency to underestimate an interest rate given other loan terms, and the tendency to underestimate a future value given other investment terms. Bias matters empirically: More-biased households borrow more, save less, favor shorter maturities, and use and benefit more from financial advice, conditional on a rich set of household characteristics. There is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication. WHAT DRIVES HOUSEHOLD financial decisions? The canonical economic model assumes that consumers choose to consume, borrow, or save based on their preferences , their expectations, and the costs and benefits of borrowing and saving. A growing body of work applies insights from psychology to enrich specifications of three of the model's key pieces: preferences, expectations, and problem-solving conditional on parameter values. 1 In this paper, we bring psychological evidence to bear on a fourth specification issue: How consumers perceive the costs and benefits of borrowing and saving. We begin by tying together existing and new evidence on these cost perceptions to show that most consumers err systematically when given information commonly available in the market. On the saving side, consumers display future value bias: a systematic tendency to underestimate a future value given

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Present-Biased Preferences and Credit Card Borrowing

Cited by 24 publications

References 59 publications

Attitude toward health insurance in developing countries from a decision-making perspective.

Attitude toward health insurance in developing countries from a decision-making perspective.

Vaccination as personal public-good provision

Exponential Growth Bias and Household Finance

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