The Effect of Income Inequality on Individuals’ Loan Decision

Shirit Katav Herz and Binyamin Berdugo

Chapter 8 in Behavioral Finance:Beyond the Basics, 2024, pp 185-203 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This study explores the impact of relative scarcity on borrowing decisions through experiments involving a Brick Breaker computer game. Participants receiving messages about others’ superior achievements exhibited a greater inclination toward larger loans. Gender differences were observed with females showing a heightened tendency to borrow when informed about peers’ accomplishments. These findings underscore the significance of upward social comparisons in loan choices. Notably, high-income inequality may deplete household savings, increasing the risk of debt crises. Effective credit market regulation assumes greater importance in addressing income inequality’s implications.

Keywords: Market Efficiency; Cross-Sectional Anomalies; Arbitrage Trading Activity; Exploiting Mispricing Dividends; Stock Repurchase; Annuity; Financial Decisions; Lump Sum. Retirement Savings; Behavioral Factors; Disruptive Innovation; Market Transition; Investments; Analyst Recommendations; Coverage Initiation; Stock Market Reaction; Artificial Intelligence; Professional Investors (search for similar items in EconPapers)
JEL-codes: G4 (search for similar items in EconPapers)
Date: 2024
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