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Present-Biased Preferences and Credit Card Borrowing

  • Meier, Stephan

    ()

    (Columbia University)

  • Sprenger, Charles

    ()

    (Stanford University)

Some individuals borrow extensively on their credit cards. This paper tests whether present-biased time preferences correlate with credit card borrowing. In a field study, we elicit individual time preferences with incentivized choice experiments, and match resulting time preference measures to individual credit reports and annual tax returns. The results indicate that present-biased individuals are more likely to have credit card debt, and have significantly higher amounts of credit card debt, controlling for disposable income, other socio-demographics, and credit constraints.

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File URL: http://ftp.iza.org/dp4198.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4198.

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Length: 38 pages
Date of creation: May 2009
Date of revision:
Publication status: published in: American Economic Journal: Applied Economics, 2010, 2 (1), 193-210
Handle: RePEc:iza:izadps:dp4198
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  1. William Adams & Liran Einav & Jonathan Levin, 2007. "Liquidity Constraints and Imperfect Information in Subprime Lending," NBER Working Papers 13067, National Bureau of Economic Research, Inc.
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  8. Glenn Harrison & John List, 2004. "Field experiments," Artefactual Field Experiments 00058, The Field Experiments Website.
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  18. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  19. Meier, Stephan & Sprenger, Charles, 2008. "Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs," IZA Discussion Papers 3507, Institute for the Study of Labor (IZA).
  20. Gine, Xavier & Karlan, Dean & Zinman, Jonathan, 2009. "Put your money where your butt is : a commitment contract for smoking cessation," Policy Research Working Paper Series 4985, The World Bank.
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