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Present-bias in different income groups

Author

Listed:
  • Erdem O.
  • Can B.

    (GSBE)

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 fi ndings show that diff erent income groups have similar discount factors, i.e., impatience levels, but very diff erent 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 fi nancial investment.

Suggested Citation

  • Erdem O. & Can B., 2013. "Present-bias in different income groups," Research Memorandum 008, Maastricht University, Graduate School of Business and Economics (GSBE).
  • Handle: RePEc:unm:umagsb:2013008
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    File URL: https://cris.maastrichtuniversity.nl/portal/files/1436715/content
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    References listed on IDEAS

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    1. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    2. Glenn W. Harrison & Morten I. Lau & Melonie B. Williams, 2002. "Estimating Individual Discount Rates in Denmark: A Field Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1606-1617, December.
    3. 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.
    4. David Laibson & Andrea Repetto & Jeremy Tobacman, 2005. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Levine's Bibliography 784828000000000643, UCLA Department of Economics.
    5. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    6. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    7. 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.
    8. Paul A. Samuelson, 1937. "A Note on Measurement of Utility," Review of Economic Studies, Oxford University Press, vol. 4(2), pages 155-161.
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    1. repec:eee:joepsy:v:61:y:2017:i:c:p:39-54 is not listed on IDEAS

    More about this item

    Keywords

    Field Experiments; Personal Finance; Intertemporal Consumer Choice; Life Cycle Models and Saving;

    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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