IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2010-25.html
   My bibliography  Save this paper

Implications of behavioral research for the use and regulation of consumer credit products

Author

Listed:
  • Gregory E. Elliehausen

Abstract

This paper reviews the behavioral literature on inter-temporal choice and decision making under uncertainty and assesses the evidence on behavioral influences affecting consumers' credit decisions. The evidence reviewed suggests that consumers often do not consider all information available in the market nor deliberately evaluate each alternative. Consumers simplify, take shortcuts, and use heuristics, which may not always be optimal but nevertheless may be an economical means for achieving desired goals. While most economists and psychologists agree that cognitive errors and time inconsistent behavior occur, the extent to which these phenomena impair actual decisions in markets is not at all clear. At this time, neither existing behavioral evidence nor conventional economic evidence supports a general conclusion that consumers' credit decisions are not rational or that markets do not work reasonably well. Empirical evidence suggests that behavioral research can help improve required information disclosures and contribute to more effective regulation, which enhances the performance of markets and improves individual outcomes.

Suggested Citation

  • Gregory E. Elliehausen, 2010. "Implications of behavioral research for the use and regulation of consumer credit products," Finance and Economics Discussion Series 2010-25, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2010-25
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/2010/201025/201025abs.html
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/feds/2010/201025/201025pap.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Reint Gropp & John Karl Scholz & Michelle J. White, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 217-251.
    2. Igor Livshits & James MacGee & Michèle Tertilt, 2010. "Accounting for the Rise in Consumer Bankruptcies," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 165-193, April.
    3. Olga Gorbachev, 2011. "Did Household Consumption Become More Volatile?," American Economic Review, American Economic Association, vol. 101(5), pages 2248-2270, August.
    4. Jonathan Fisher & Larry Filer & Angela Lyons, "undated". "Is the Bankruptcy Flag Binding? Access to Credit Markets for Post-Bankruptcy Households," American Law & Economics Association Annual Meetings 1041, American Law & Economics Association.
    5. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    6. Pavan, Marina, 2008. "Consumer durables and risky borrowing: The effects of bankruptcy protection," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1441-1456, November.
    7. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
    8. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, pages 155-180.
    9. Wang, Hung-Jen & White, Michelle J, 2000. "An Optimal Personal Bankruptcy Procedure and Proposed Reforms," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 255-286, January.
    10. John M. Barron & Michael E. Staten & Stephanie M. Wilshusen, 2002. "The Impact Of Casino Gambling On Personal Bankruptcy Filing Rates," Contemporary Economic Policy, Western Economic Association International, vol. 20(4), pages 440-455, October.
    11. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
    12. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
    13. Lawrance, Emily C, 1995. "Consumer Default and the Life Cycle Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 939-954, November.
    14. Bruce C. Fallick, 1996. "A Review of the Recent Empirical Literature on Displaced Workers," ILR Review, Cornell University, ILR School, vol. 50(1), pages 5-16, October.
    15. repec:bin:bpeajo:v:26:y:1994:i:1994-3:p:177-248 is not listed on IDEAS
    16. William J. Carrington, 1993. "Wage Losses for Displaced Workers: Is It Really the Firm That Matters?," Journal of Human Resources, University of Wisconsin Press, vol. 28(3), pages 435-462.
    17. Li Gan & Tarun Sabarwal, 2005. "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy," NBER Working Papers 11763, National Bureau of Economic Research, Inc.
    18. Daniel G. Sullivan & Till von Wachter, 2006. "Mortality, mass-layoffs, and career outcomes: an analysis using administrative data," Working Paper Series WP-06-21, Federal Reserve Bank of Chicago.
    19. Astrid A. Dick & Andreas Lehnert, 2010. "Personal Bankruptcy and Credit Market Competition," Journal of Finance, American Finance Association, vol. 65(2), pages 655-686, April.
    20. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
    21. Kerwin Kofi Charles & Melvin Stephens, 2004. "Job Displacement, Disability, and Divorce," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 489-522, April.
    22. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages 68-73, March.
    23. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, vol. 54(1), pages 403-420, February.
    24. Ronel Elul & Narayanan Subramanian, 2002. "Forum-Shopping and Personal Bankruptcy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(3), pages 233-255, June.
    25. Melvin Stephens, 2001. "The Long-Run Consumption Effects Of Earnings Shocks," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 28-36, February.
    26. Song Han & Geng Li, 2011. "Household Borrowing after Personal Bankruptcy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 491-517, March.
    27. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-188, January.
    28. William N. Evans & Julie H. Topoleski, 2002. "The Social and Economic Impact of Native American Casinos," NBER Working Papers 9198, National Bureau of Economic Research, Inc.
    29. Martin Browning & Thomas Crossley, 2003. "Shocks, Stocks and Socks," Department of Economics Working Papers 2003-07, McMaster University.
    30. Topel, Robert, 1990. "Specific capital and unemployment: Measuring the costs and consequences of job loss," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 181-214, January.
    31. Zagorsky, Jay L, 1999. "Young Baby Boomers' Wealth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(2), pages 135-156, June.
    32. Kartik B. Athreya, 2005. "Equilibrium models of personal bankruptcy : a survey," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 73-98.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paul Pautler, 2015. "A Brief History of the FTC’s Bureau of Economics: Reports, Mergers, and Information Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(1), pages 59-94, February.
    2. Ardic, Oya Pinar & Ibrahim, Joyce A. & Mylenko, Nataliya, 2011. "Consumer protection laws and regulations in deposit and loan services : a cross-country analysis with a new data set," Policy Research Working Paper Series 5536, The World Bank.

    More about this item

    Keywords

    Consumer credit ; Economics;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2010-25. 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: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.