Time Inconsistency and Overdraft Use: Evidence from Transaction Data and Behavioral Measurement Experiments

Andrej Gill (gill@uni-mainz.de), Florian Hett (hett@uni-mainz.de) and Johannes Tischer (johannes.tischer@bundesbank.de)
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Andrej Gill: Johannes Gutenberg University Mainz
Florian Hett: Johannes Gutenberg University Mainz
Johannes Tischer: Deutsche Bundesbank

No 2205, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: Households regularly fail to make optimal financial decisions. But what are the underlying reasons for this? Using two conceptually distinct measures of time inconsistency based on bank account transaction data and behavioral measurement experiments, we show that the excessive use of bank account overdrafts is linked to time inconsistency. By contrast, there is no correlation between a survey-based measure of financial literacy and overdraft usage. Our results indicate that consumer education and information may not suffice to overcome mistakes in households’ financial decision-making. Rather, behaviorally motivated interventions targeting specific biases in decision-making should also be considered as effective policy tools.

Keywords: Household Finance; Paycheck Sensitivity; Fintech; Time Inconsistency; Time Preferences; Experiment; Behavioral Measurement (search for similar items in EconPapers)
JEL-codes: D14 D90 G51 G53 (search for similar items in EconPapers)
Pages: 85 pages
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-exp and nep-fle
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https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_2205.pdf First version, 2022 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:jgu:wpaper:2205

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