Hidden Costs of Hidden Debt

Johan Almenberg and Artashes Karapetyan

Review of Finance, 2014, vol. 18, issue 6, 2247-2281

Abstract: We argue that salience—the extent to which a cost is visible and difficult to ignore—may have economically significant effects on homeowners’ borrowing behavior, through a bias toward less salient but more expensive loans. We first use a simple model to show that the presence of some biased consumers in the market will affect equilibrium prices. Next, we show that market data support the predictions of the model. We conduct several robustness checks to address unobserved heterogeneity. The observed effect is large. We finally report a survey evidence consistent with this bias.

Date: 2014
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The hidden costs of hidden debt (2012)
Working Paper: The Hidden Costs of Hidden Debt (2011)
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