Positive illusions and the temptation to borrow

Eva Kløve and Halvor Mehlum

Oxford Economic Papers, 2019, vol. 71, issue 3, 623-644

Abstract: We provide an explanation of the low willingness to save that is observed in many developing countries. Our explanation is based on the hypothesis that people have an over-optimistic outlook. As discussed in the psychological literature, an illusionary positive view of the future may be a good thing. However, we show that it can lead individuals to accumulate unsustainable levels of debt. Using survey data from South Africa, we confirm that poor people are indeed overly optimistic, and that optimism is positively and significantly related to borrowing in general, and to expensive borrowing in particular.

JEL-codes: D03 D14 O10 O12 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/oep/gpy050 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Positive illusions and the temptation to borrow (2017)
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:oup:oxecpp:v:71:y:2019:i:3:p:623-644.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Oxford Economic Papers is currently edited by James Forder and Francis J. Teal

More articles in Oxford Economic Papers from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().