The Determinants of Attitudes towards Strategic Default on Mortgages

Luigi Guiso, Paola Sapienza and Luigi Zingales

No ECO2010/31, Economics Working Papers from European University Institute

Abstract: We use survey data to study American households' propensity to default when the value of their mortgage exceeds the value of their house even if they can afford to pay their mortgage (strategic default). The cost of defaulting strategically increases in wealth, but at a decreasing rate. It is driven both by pecuniary and non pecuniary factors, such as views about fairness and morality. Exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.

Date: 2010
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Journal Article: The Determinants of Attitudes toward Strategic Default on Mortgages (2013)
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