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Debiasing the availability heuristic in student loan decision-making

Author

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  • Manuel Salas-Velasco

    (University of Granada)

Abstract

The availability heuristic is a cognitive bias that affects various aspects of decision-making, including financial decisions. Based on a randomized controlled experiment, this study assesses the effectiveness of a debiasing treatment designed to prevent the effect of the availability heuristic in student loan decision-making. Experimental subjects were explained that there is a bias that may affect the decision of whether or not to pursue a master’s degree and take out a graduate loan to finance it, and they were recommended to base their decision on reliable and verified sources of information as well as expert advice. This specific debiasing strategy is tested empirically. Specifically, this study shows positive causal effects of the debiasing intervention on two indices of student loan decision-making, which were constructed as summary indicators of student loan debt attitude, the perception that significant referents approve the student loan indebtedness, financial self-efficacy in student loan decision-making, and graduate loan borrowing intention. The article highlights the need for higher education institutions seeking to make financial education effective to be concerned with reporting on (and raising awareness of) psychological factors that are present in making financial decisions as well.

Suggested Citation

  • Manuel Salas-Velasco, 2024. "Debiasing the availability heuristic in student loan decision-making," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(2), pages 501-528, May.
    • Handle: RePEc:kap:empiri:v:51:y:2024:i:2:d:10.1007_s10663-024-09609-z
    DOI: 10.1007/s10663-024-09609-z
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    Keywords

    Debiasing treatment; Experimental finance; Financial education intervention; Student loan borrower behavior;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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