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Intertemporal consumption and debt aversion: an experimental study

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  • Thomas Meissner

    (Berlin University of Technology
    Grenoble Ecole de Management)

Abstract

This paper tests how subjects behave in an intertemporal consumption/saving experiment when borrowing is allowed and whether subjects treat debt differently than savings. Two treatments create environments where either saving or borrowing is required for optimal consumption. Since both treatments share the same optimal consumption levels, observed consumption choices can be directly compared across treatments. The experimental findings imply that deviations from optimal behavior are higher when subjects have to borrow than when they have to save in order to consume optimally, suggesting debt aversion. Signifiant under-consumption is observed when subjects have to borrow in order to reach optimal consumption. In line with previous experiments, weak evidence is found suggesting that subjects over-consume when saving is necessary for optimal consumption.

Suggested Citation

  • Thomas Meissner, 2016. "Intertemporal consumption and debt aversion: an experimental study," Experimental Economics, Springer;Economic Science Association, vol. 19(2), pages 281-298, June.
  • Handle: RePEc:kap:expeco:v:19:y:2016:i:2:d:10.1007_s10683-015-9437-0
    DOI: 10.1007/s10683-015-9437-0
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    More about this item

    Keywords

    Laboratory experiment; Intertemporal consumption; Consumption smoothing; Debt aversion;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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