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Present-Biased Preferences and Credit Card Borrowing

  • Stephan Meier
  • Charles Sprenger

Some individuals borrow extensively on their credit cards. This paper tests whether present-biased time preferences correlate with credit card borrowing. In a field study, we elicit individual time preferences with incentivized choice experiments, and match resulting time preference measures to individual credit reports and annual tax returns. The results indicate that present-biased individuals are more likely to have credit card debt, and to have significantly higher amounts of credit card debt, controlling for disposable income, other socio-demographics, and credit constraints. (JEL D12, D14, D91)

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Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 2 (2010)
Issue (Month): 1 (January)
Pages: 193-210

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Handle: RePEc:aea:aejapp:v:2:y:2010:i:1:p:193-210
Note: DOI: 10.1257/app.2.1.193
Contact details of provider: Web page: https://www.aeaweb.org/aej-applied
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  20. Meier, Stephan & Sprenger, Charles, 2008. "Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs," IZA Discussion Papers 3507, Institute for the Study of Labor (IZA).
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