How Much Are Borrowers Willing to Pay to Remove Uncertainty Surrounding Mortgage Defaults?

Jackson T. Anderson (), Scott Gibson (), Kimberly F. Luchtenberg () and Michael Seiler ()
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Jackson T. Anderson: Claremont McKenna College
Scott Gibson: Raymond A. Mason College of Business
Kimberly F. Luchtenberg: American University

The Journal of Real Estate Finance and Economics, 2022, vol. 64, issue 4, No 2, 500-522

Abstract: Abstract Using a large, non-student sample, we assess and differentiate between borrowers’ Risk Aversion and Ambiguity Aversion levels and their willingness to pay to resolve a mortgage default settlement negotiation. Ambiguity Aversion is found to be negatively associated with willingness to pay for borrowers with high financial literacy in both the gain and loss domains, whereas personality traits matter more for borrowers with low financial literacy. This finding is important to policymakers in that they should adopt differential resolution strategies for defaulting borrowers based on these intervening variables.

Keywords: Ambiguity aversion; Risk aversion; Prospect theory; Experiment; Mortgage default; G41; R22 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11146-020-09810-4

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