The Library
How do individuals repay their debt? The balance-matching heuristic
Tools
Gathergood, John, Mahoney, Neale, Stewart, Neil and Weber, Jörg (2019) How do individuals repay their debt? The balance-matching heuristic. American Economic Review, 109 (3). pp. 844-875. doi:10.1257/aer.20180288 ISSN 0002-8282.
|
PDF
WRAP-how-do-individuals-debt-heuristic-Stewart-2018.pdf - Accepted Version - Requires a PDF viewer. Download (2803Kb) | Preview |
Official URL: https://doi.org/10.1257/aer.20180288
Abstract
We study how individuals repay their debt using linked data on multiple credit cards. Repayments are not allocated to the higher interest rate card, which would minimize the cost of borrowing. Moreover, the degree of misallocation is invariant to the economic stakes, which is inconsistent with optimization frictions. Instead, we show that repayments are consistent with a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. Balance matching captures more than half of the predictable variation in repayments and is highly persistent within individuals over time.
Item Type: | Journal Article | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Subjects: | H Social Sciences > HG Finance | ||||||||||||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||||||||||||
Library of Congress Subject Headings (LCSH): | Credit cards, Debt -- Mathematical models | ||||||||||||||||||
Journal or Publication Title: | American Economic Review | ||||||||||||||||||
Publisher: | American Economic Association | ||||||||||||||||||
ISSN: | 0002-8282 | ||||||||||||||||||
Official Date: | March 2019 | ||||||||||||||||||
Dates: |
|
||||||||||||||||||
Volume: | 109 | ||||||||||||||||||
Number: | 3 | ||||||||||||||||||
Page Range: | pp. 844-875 | ||||||||||||||||||
DOI: | 10.1257/aer.20180288 | ||||||||||||||||||
Status: | Peer Reviewed | ||||||||||||||||||
Publication Status: | Published | ||||||||||||||||||
Reuse Statement (publisher, data, author rights): | Copyright © 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018 by the American Economic Association. Permission to make digital or hard copies of part or all of American Economic Association publications for personal or classroom use is granted without fee provided that copies are not distributed for profit or direct commercial advantage and that copies show this notice on the first page or initial screen of a display along with the full citation, including the name of the author. Copyrights for components of this work owned by others than AEA must be honored. Abstracting with credit is permitted. The author has the right to republish, post on servers, redistribute to lists and use any component of this work in other works. For others to do so requires prior specific permission and/or a fee. Permissions may be requested from the American Economic Association Administrative Office by going to the Contact Us form and choosing "Copyright/Permissions Request" from the menu. Copyright © 2018 AEA | ||||||||||||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||||||||||||
Copyright Holders: | AEA | ||||||||||||||||||
Date of first compliant deposit: | 17 August 2018 | ||||||||||||||||||
Date of first compliant Open Access: | 17 August 2018 | ||||||||||||||||||
RIOXX Funder/Project Grant: |
|
||||||||||||||||||
Related URLs: | |||||||||||||||||||
Open Access Version: |
Request changes or add full text files to a record
Repository staff actions (login required)
View Item |
Downloads
Downloads per month over past year