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Mortgage Choice as a Natural Field Experiment on Choice under Risk

Philomena M. Bacon and Peter Moffatt

Journal of Money, Credit and Banking, 2012, vol. 44, issue 7, 1401-1426

Abstract: Data on approximately 280,000 borrowers from the UK Survey of Mortgage Lenders are used to model choices between variable and fixed rate mortgages. The choice is assumed to depend on three factors: risk attitude, interest‐rate expectations, and individual discount rate. The ordered probit model is used for estimation, while taking account of a number of econometric issues including missing counterfactuals, selectivity, and endogeneity. A large number of strong effects are found, including: higher income borrowers are less risk averse and have a lower discount rate, and risk aversion rises with the amount borrowed, providing evidence of increasing relative risk aversion.

Date: 2012
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https://doi.org/10.1111/j.1538-4616.2012.00537.x

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Journal Article: Mortgage Choice as a Natural Field Experiment on Choice under Risk (2012) Downloads
Working Paper: Mortgage Choice as a Natural Field Experiment on Choice Under Risk (2010) Downloads
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