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Debt of high-income consumers may reflect leverage rather than poor cognitive reflection

Sergio Da Silva, Newton Da Costa , Raul Matsushita, Cristiana Vieira, Ana Correa and Dinorá De Faveri

MPRA Paper from University Library of Munich, Germany

Abstract: A recent population-wide study for Germany, where credit lines on current accounts are available to 80 percent of the population, finds that overdraft debt is more likely for people who give intuitive but incorrect answers on a cognitive reflection test. This suggests those consumers in debt have poorer cognitive reflection and, thus, lack of self control. The Germany study finds that “surprisingly, the level of income does not play a central role.” Here we discriminate the consumers in terms of their income by considering two experiments. In the first (pilot) experiment we do not discriminate consumers in terms of income and, as result, replicate the Germany study. In a follow-up experiment, which assembles a high-quality sample of high-income consumers, we find debt can no longer be explained by poor cognitive reflection. Apparently, high-income consumers treat debt as mere leverage, as companies do.

Keywords: consumer behavior; consumer indebtedness; debt; overdraft; cognitive reflection (search for similar items in EconPapers)
JEL-codes: D03 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-eur, nep-exp, nep-neu and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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