Article

Measuring Time Preferences Using Stated Credit Repayment Choices

Details

Citation

Li H, Campbell D & Erdem S (2022) Measuring Time Preferences Using Stated Credit Repayment Choices. Journal of Quantitative Economics, 20 (1), pp. 43-67. https://doi.org/10.1007/s40953-021-00283-7

Abstract
This paper explores consumers’ repayment decisions and their time preferences. We do this through a hypothetical study using a stated-preference approach. In our experiment, participants are asked to make repayment decisions over time, under different loan sizes. We report five choice trajectories: minimum delay, monotonically decreasing, trajectory with one contradicting choice, trajectory with more than one contradicting choice, and maximum delay. These choice trajectories are taken into account in our modelling approach. Our analysis uses choice models that jointly estimate the discount rate and the probability of choice trajectories. Observed heterogeneity in repayment behaviour is further analysed using sociodemographic factors, and tested for the two loan sizes. We report heterogeneity in consumer repayment decisions, and what happens in the decision-making process for participants in different sociodemographic groups, for different loan sizes. These findings suggest that decision-makers can tailor their strategy for mitigating consumer debts by targeting different groups in the population demonstrating different choice behaviour and decision-making.

Keywords
Time preference; Repayment decisions; Choice trajectory; Discount rate

Journal
Journal of Quantitative Economics: Volume 20, Issue 1

StatusPublished
Publication date31/03/2022
Publication date online31/01/2022
Date accepted by journal29/11/2021
URLhttp://hdl.handle.net/1893/33954
ISSN0971-1554
eISSN2364-1045

People (2)

People

Professor Danny Campbell
Professor Danny Campbell

Professor, Economics

Dr Seda Erdem
Dr Seda Erdem

Associate Professor, Economics