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The goal gradient effect and repayments in consumer credit

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  • Lukas, Moritz

Abstract

Based on a unique dataset, I show that repayments in consumer credit increase with the proximity of a borrower’s current debt level to the debt level with the next lower leftmost digit. This behavior is consistent with the goal gradient effect. The effect is only observed for borrowers who have not committed to monthly minimum repayments.

Suggested Citation

  • Lukas, Moritz, 2018. "The goal gradient effect and repayments in consumer credit," Economics Letters, Elsevier, vol. 171(C), pages 208-210.
  • Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:208-210
    DOI: 10.1016/j.econlet.2018.06.025
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    References listed on IDEAS

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    1. Nicola Lacetera & Devin G. Pope & Justin R. Sydnor, 2012. "Heuristic Thinking and Limited Attention in the Car Market," American Economic Review, American Economic Association, vol. 102(5), pages 2206-2236, August.
    2. Asmus Leth Olsen, 2013. "Leftmost-digit-bias in an enumerated public sector? An experiment on citizens' judgment of performance information," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(3), pages 365-371, May.
    3. Joseph C. Nunes & Xavier Drze, 2006. "The Endowed Progress Effect: How Artificial Advancement Increases Effort," Journal of Consumer Research, Oxford University Press, vol. 32(4), pages 504-512, March.
    4. Meghan R. Busse & Nicola Lacetera & Devin G. Pope & Jorge Silva-Risso & Justin R. Sydnor, 2013. "Estimating the Effect of Salience in Wholesale and Retail Car Markets," American Economic Review, American Economic Association, vol. 103(3), pages 575-579, May.
    5. Manoj Thomas & Vicki Morwitz, 2005. "Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition," Journal of Consumer Research, Oxford University Press, vol. 32(1), pages 54-64, June.
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