Generalized Hyperbolic Discounting, Borrowing Aversion, and Debt Holding

Shinsuke Ikeda and Myong-Il Kang

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: Analysis of an original, broad, internet-based survey reveals that debt holding is related to three aspects of time discounting: (i) present bias, measured by the degree of declining impatience in the generalized hyperbolic discount function; (ii) borrowing aversion, captured by a sign effect - discounting future losses at a lower rate than future gains; and (iii) impatience, measured by the overall discount rate. Present-biased respondents are classified as naĩve if their answers reveal them to be time-inconsistent procrastinators, and classified as sophisticated otherwise. Naĩve respondents with more steeply declining impatience are more likely to be debtors, and are likely to have larger amounts of debt, whereas sophisticates display only insignificant positive association between declining impatience and debt holding. Responses indicative of a sign effect are negatively associated with debt holding. The marginal effect on debt of such a sign effect is larger in magnitude than the effect of one standard deviation increases both in declining impatience and in impatience.

Date: 2011-10
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:0817

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