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Present-bias in different income groups

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  • Erdem O.
  • Can B.

    (GSBE)

Abstract

The excessive use of credit cards and increasing consumer borrowing has been a major problem. Laibson (1997) suggests the present-bias problem as one of the driving forces of excessive borrowing. Shefrin and Thaler (1988) suggest that self-control underlies national borrowing/savings rate. We conduct a survey to check for present-bias as well as self-control problems among individuals in Turkey. Our fi ndings show that diff erent income groups have similar discount factors, i.e., impatience levels, but very diff erent degrees of dynamic inconsistencies, i.e. present-bias levels. In particular, 29.4% of low-income individuals exhibit present-bias whereas this is down to 6.4% for high-income individuals. Using the parameters we achieve through the surveys, policymakers can design appropriate commitment devices for time-inconsistent individuals to ensure a sustainable level of aggregate saving and fi nancial investment.

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File URL: http://pub.maastrichtuniversity.nl/81733505-3f13-46f8-9228-3eb7b6dbc13d
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Bibliographic Info

Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 008.

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Date of creation: 2013
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Handle: RePEc:unm:umagsb:2013008

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Keywords: Field Experiments; Personal Finance; Intertemporal Consumer Choice; Life Cycle Models and Saving;

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  1. David Laibson & Andrea Repetto & Jeremy Tobacman, 2007. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Documentos de Trabajo 236, Centro de Economía Aplicada, Universidad de Chile.
  2. Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
  3. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  4. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
  5. Glenn W. Harrison & Morten I. Lau & Melonie B. Williams, 2002. "Estimating Individual Discount Rates in Denmark: A Field Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1606-1617, December.
  6. Stephan Meier & Charles Sprenger, 2010. "Present-Biased Preferences and Credit Card Borrowing," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 193-210, January.
  7. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  8. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  9. Botond Kőszegi & Paul Heidhues, 2008. "Competition and Price Variation When Consumers Are Loss Averse," American Economic Review, American Economic Association, vol. 98(4), pages 1245-68, September.
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