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Measuring Aversion to Debt: An Experiment Among Student Loan Candidates

Gregorio Caetano, Miguel Palacios () and Harry Patrinos ()
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Gregorio Caetano: University of Georgia
Miguel Palacios: University of Calgary

Journal of Family and Economic Issues, 2019, vol. 40, issue 1, 117-131

Abstract: Abstract Debt aversion, an unwillingness to enter into a financial contract framed or labeled as debt, distorts household investment and financing decisions. We test through an experiment for the presence of debt aversion among a relevant population. The tests allow us to identify two sources of debt aversion: one due to framing (as debt or as an income-contingent contract) and another due to labeling (as a loan or as a human capital contract). Most of the debt aversion we identified was due to labeling. Labeling a contract as a loan decreased its probability of being chosen over a financially equivalent contract and increased its perceived cost.

Keywords: Debt aversion; Human capital contracts; Income contingent loans; Income share agreements (search for similar items in EconPapers)
Date: 2019
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Working Paper: Measuring aversion to debt: an experiment among student loan candidates (2011) Downloads
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Handle: RePEc:kap:jfamec:v:40:y:2019:i:1:d:10.1007_s10834-018-9601-8