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Impulsivity and household indebtedness

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  • Cristina OTTAVIANI
  • Daniela VANDONE

Abstract

Using a probit model we empirically estimated the role of emotional factors in determining household participation in the debt market, after controlling for traditional economic predictors, such as age, level of education, income, wealth, and work status. A sample of 445 Caucasian subjects, randomly selected among full time employed at international asset management companies, underwent the Barratt Impulsiveness Scale, the Iowa Gambling Task (IGT) coupled with skin conductance recording, and a series of questions related to their demographic-socio economical profile. Aside from confirming the role played by the traditional explanatory variables commonly used as determinants of household indebtedness, results revealed the significant influence of individuals’ impulsivity in debt decisions. Specifically, the motor component of impulsivity predicted unsecured debt (i. e. consumer credit), while the non planning component was related to secured debt (i. e. mortgages). On the contrary, the presence of a somatic marker to guide decisions at the IGT did not predict real life indebtedness decisions in this non clinical sample. The notion that “non rational” factors influence debt demand has been largely ignored and raises concerns about the risk of over-indebtedness for impulsive individuals.

Suggested Citation

  • Cristina OTTAVIANI & Daniela VANDONE, 2010. "Impulsivity and household indebtedness," Departmental Working Papers 2010-28, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2010-28
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    References listed on IDEAS

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    More about this item

    Keywords

    Decision-making; household indebtedness; impulsivity; Iowa Gambling Task;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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