I Will Pay Tomorrow, or Maybe the Day After. Credit Card Repayment, Present Biased and Procrastination

Gustavo Barboza

Economic Notes, 2018, vol. 47, issue 2-3, 455-494

Abstract: Procrastinating the repayment in full on a month†to†month balance in credit card debt is a problem affecting a large segment of the population. This paper studies the role that present†biased preferences and impatience play in the repayment behaviour of consumers. Evidence from a field study using a sample of 380 college students provides empirical support to the hypothesis that individuals with present†biased preferences tend to adopt a strategic procrastination repayment behaviour that is not optimal to accomplish repayment in full. More specifically, individuals suffering from self control issues and using credit cards to bridge unexpected shortage of income are more likely to fail to repay credit cards in full in the period after the purchase was completed, therefore, carrying over a month†to†month balance. In addition, people with a simple present†biased revealed effect are also more likely to fall behind on credit card repayment, vis†à †vis those that have a higher marginal propensity to save. By the same token, we find that individuals consistently behave inconsistently, that is evidence from our sample indicates the predominance of dynamically inconsistent preferences, in opposition to the prescriptions of the neoclassical theory. In this regard, the naïve type of individuals with present†bias preferences consume beyond their income capabilities and are much more likely to carry over credit card debt into the next period, vis†à †vis individuals that are more sophisticated.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/ecno.12106

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ecnote:v:47:y:2018:i:2-3:p:455-494

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0391-5026

Access Statistics for this article

More articles in Economic Notes from Banca Monte dei Paschi di Siena SpA
Bibliographic data for series maintained by Wiley Content Delivery ().