The role of risk attitudes and expectations in household borrowing: evidence from Estonia

Eva Branten ()
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Eva Branten: Department of Economics and Finance, Tallinna Tehnikaulikool, Tallinn, Estonia

Baltic Journal of Economics, 2022, vol. 22, issue 2, 126-145

Abstract: This study investigates the role of risk attitudes and financial expectations in households’ borrowing behaviour. The central research question is whether risk aversion and optimistic expectations provide additional information beyond the main economic and sociodemographic characteristics in predicting applications for credit and the size of debt. The paper uses microdata from the Estonian Household Finance and Consumption Survey (HFCS) and estimates probit and Heckman models. My analysis shows that risk-tolerant households apply for loans more often than risk-averse households do and that their loans are larger. The variables describing the household's expectations for its future financial situation are on their own related to the decision to apply for a loan, but they do not contain any relevant additional information beyond the main economic and sociodemographic characteristics of the household.

Keywords: household debt; mortgage loans; non-mortgage loans; borrowing decisions; income and price expectations; risk attitudes; Household Finance and Consumption Survey (search for similar items in EconPapers)
JEL-codes: D14 G51 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:22:y:2022:i:2:p:126-145

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