Precommitments for Financial Self-Control? Micro Evidence from the 2003 Korean Credit Crisis

Sungjin Cho and John Rust ()

Journal of Political Economy, 2017, vol. 125, issue 5, 1413 - 1464

Abstract: We analyze high-frequency micro panel data on customers of a major Korean credit card company before and after the 2003 Korean credit crisis and find evidence of pervasive precommitment behavior that is difficult to explain using standard economic theories: (1) customers voluntarily reduce their credit card borrowing limits without any compensation, (2) customers turn down interest-free installment loan offers with high probability, and (3) of the small fraction of customers who do accept interest-free loan offers, most precommit to pay off the loan over a shorter term than the maximum allowed term under the offer.

Date: 2017
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