Illiquidity trap: Over-indebted subjects and their cognitive consequences

Guillermo León Toro-García, Sandra Balanta-Cobo and Alexander Alegría-Castellanos

RAE - Revista de Administração de Empresas, 2023, vol. 64, issue 1

Abstract: This research aims to show the cognitive constraints experienced by resulting from financial concerns and problems. A case study was conducted involving eight individuals living in different Colombian cities, who got into debt and faced an insolvency process. The results obtained are consistent with the theoretical-empirical framework proposed by Mullainathan and Shafir (2013), regarding the cognitive strain experienced by individuals with feeling of scarcity. This work contributes to the existing empirical literature and represents a firststep toward the existence of a debt illiquidity trap that drives debtors to perpetuate their critical financial situation.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eaerae:v:64:y:2023:i:1:a:90409

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