The effect of present‐biased preferences on revolving debts: Evidence from urban households in China

Chunchun Chen, Chengchun Li and Guoying Ren

International Journal of Finance & Economics, 2022, vol. 27, issue 3, 2653-2668

Abstract: This paper examines the role of present‐biased preferences in repayment behaviour of urban households in China. By developing a theoretical model, we suggest that there is a connection between households' present‐biased preferences and their behaviour of using revolving debts. Using the data from the 2013 China Household Finance Survey (CHFS), we find that compared with households who do not have present‐biased preferences those who have such preferences exhibit a higher probability of carrying revolving debts and tend to have more revolving debts. Our findings provide a reasonable guideline for alleviating the problem of repayment procrastination in developing countries and can also be useful for individuals cultivating good consumption and repayment habits.

Date: 2022
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https://doi.org/10.1002/ijfe.2292

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