Impulsivity and household indebtedness
AbstractUsing a probit model we empirically estimated the role of emotional factors in determining household participation in the debt market, after controlling for traditional economic predictors, such as age, level of education, income, wealth, and work status. A sample of 445 Caucasian subjects, randomly selected among full time employed at international asset management companies, underwent the Barratt Impulsiveness Scale, the Iowa Gambling Task (IGT) coupled with skin conductance recording, and a series of questions related to their demographic-socio economical profile. Aside from confirming the role played by the traditional explanatory variables commonly used as determinants of household indebtedness, results revealed the significant influence of individuals’ impulsivity in debt decisions. Specifically, the motor component of impulsivity predicted unsecured debt (i. e. consumer credit), while the non planning component was related to secured debt (i. e. mortgages). On the contrary, the presence of a somatic marker to guide decisions at the IGT did not predict real life indebtedness decisions in this non clinical sample. The notion that “non rational” factors influence debt demand has been largely ignored and raises concerns about the risk of over-indebtedness for impulsive individuals.
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Bibliographic InfoPaper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2010-28.
Date of creation: 22 Jul 2010
Date of revision:
Decision-making; household indebtedness; impulsivity; Iowa Gambling Task;
Other versions of this item:
- Cristina Ottaviani & Daniela Vandone, 2010. "Impulsivity and household indebtedness," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1105, Universitá degli Studi di Milano.
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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