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Intertemporal Consumption and Debt Aversion:An Experimental Study

  • Thomas Meissner
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    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, actual 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 underconsumption is observed when subjects have to borrow in order to reach optimal consumption. Only weak evidence is found suggesting that subjects over-consume when saving is necessary for optimal consumption.

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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2013-045.pdf
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    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2013-045.

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    Length: 28 pages
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2013-045
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    Web page: http://sfb649.wiwi.hu-berlin.de
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    1. Alexander L. Brown & Zhikang Eric Chua & Colin F. Camerer, 2009. "Learning and Visceral Temptation in Dynamic Saving Experiments-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 197-231, February.
    2. T. Ballinger & Eric Hudson & Leonie Karkoviata & Nathaniel Wilcox, 2011. "Saving behavior and cognitive abilities," Experimental Economics, Springer, vol. 14(3), pages 349-374, September.
    3. Guidon Fenig & Mariya Mileva & Luba Petersen, 2013. "Asset Trading and Monetary Policy in Production Economies," Discussion Papers dp13-08, Department of Economics, Simon Fraser University, revised Aug 2014.
    4. Erica Field, 2009. "Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at NYU Law School," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 1-21, January.
    5. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers 334, University of Pittsburgh, Department of Economics, revised Jun 2014.
    6. Enrica Carbone & John D. Hey, 2004. "The effect of unemployment on consumption: an experimental analysis," Economic Journal, Royal Economic Society, vol. 114(497), pages 660-683, 07.
    7. T. Parker Ballinger & Michael G. Palumbo & Nathaniel T. Wilcox, 2003. "Precautionary saving and social learning across generations: an experiment," Economic Journal, Royal Economic Society, vol. 113(490), pages 920-947, October.
    8. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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