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Present-bias in different income groups

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  • Can, B.

    (Microeconomics & Public Economics)

  • Erdem, O.

Abstract

The excessive use of credit cards and increasing consumer borrowing has been a major problem. Laibson (1997) suggests the present-bias problem as one of the driving forces of excessive borrowing. Shefrin and Thaler (1988) suggest that self-control underlies national borrowing/savings rate. We conduct a survey to check for present-bias as well as self-control problems among individuals in Turkey. Our findings show that different income groups have similar discount factors, i.e., impatience levels, but very different degrees of dynamic inconsistencies, i.e. present-bias levels. In particular, 29.4% of low-income individuals exhibit present-bias whereas this is down to 6.4% for high-income individuals. Using the parameters we achieve through the surveys, policymakers can design appropriate commitment devices for time-inconsistent individuals to ensure a sustainable level of aggregate saving and financial investment.

Suggested Citation

  • Can, B. & Erdem, O., 2013. "Present-bias in different income groups," Research Memorandum 008, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2013008
    DOI: 10.26481/umagsb.2013008
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    References listed on IDEAS

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    5. Stephan Meier & Charles Sprenger, 2010. "Present-Biased Preferences and Credit Card Borrowing," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 193-210, January.
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    8. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-643, October.
    9. Ernst Fehr, 2002. "The economics of impatience," Nature, Nature, vol. 415(6869), pages 269-272, January.
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    Cited by:

    1. Incekara-Hafalir, Elif & Linardi, Sera, 2017. "Awareness of low self-control: Theory and evidence from a homeless shelter," Journal of Economic Psychology, Elsevier, vol. 61(C), pages 39-54.
    2. Massimo Filippini & Nilkanth Kumar & Suchita Srinivasan, 2021. "Behavioral Anomalies and Fuel Efficiency: Evidence from Motorcycles in Nepal," CER-ETH Economics working paper series 21/353, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • 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

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