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Present-bias in different income groups

Burak Can and O. Erdem

No 8, Research Memorandum from Maastricht University, Graduate School of Business and Economics (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 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.

JEL-codes: C93 D14 D91 (search for similar items in EconPapers)
Date: 2013-01-01
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:umagsb:2013008

DOI: 10.26481/umagsb.2013008

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