IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Mortgage Choice as a Natural Field Experiment on Choice under Risk

Listed author(s):
  • PHILOMENA M. BACON
  • PETER G. MOFFATT

Microdata from the UK Survey of Mortgage Lenders is used to model borrowers' choices between variable and fixed rate mortgages. The data is treated as a large-scale "natural experiment" on risky choice, with the choice of a fixed rate corresponding to the "safe choice" in a more conventional experimental setting. The choice is assumed to depend partly on risk attitude, and partly on expectations of future movements in interest rates. Approximately 280,000 choices, made by borrowers between 1992 and 2001, appear in the sample. The ordered probit model is used for estimation, while taking account of a number of econometric issues including missing counterfactuals, selectivity, and endogeneity. Explanatory variables are divided into three groups: mortgage price variables; interest rate expectations; and borrower characteristics. A large number of strong effects are found, including: fixing is more likely when agents expect interest rates to increase; the presence of female borrowers increases the propensity to fix; older borrowers are less likely to fix; high-income borrowers are less likely to fix, particularly so if income is "self-certified"; those with higher loan-to-value ratios are less likely to fix. These findings amount to new insights in the modelling of choice under risk.Series: University of East Anglia Applied and Financial Economics Working Paper Series

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1111/j.1538-4616.2012.00537.x
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 44 (2012)
Issue (Month): 7 (October)
Pages: 1401-1426

as
in new window

Handle: RePEc:mcb:jmoncb:v:44:y:2012:i:7:p:1401-1426
DOI: j.1538-4616.2012.00537.x
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. David Masclet & Youenn Loheac & Laurent Denant-Boemont & Nathalie Colombier, 2004. "Group and individual risk preferences : a lottery-choice experiment," Cahiers de la Maison des Sciences Economiques bla06063, Université Panthéon-Sorbonne (Paris 1), revised Sep 2006.
  2. Richard A. Phillips & James H. VanderHoff, 1994. "Alternative Mortgage Instruments, Qualification Constraints and the Demand for Housing: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(3), pages 453-477.
  3. Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
  4. Masclet, David & Colombier, Nathalie & Denant-Boemont, Laurent & Lohéac, Youenn, 2009. "Group and individual risk preferences: A lottery-choice experiment with self-employed and salaried workers," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 470-484, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:44:y:2012:i:7:p:1401-1426. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.