|
on Neuroeconomics |
|
Issue of 2017‒06‒11
two papers chosen by |
| By: | Da Silva, Sergio; Da Costa Jr, Newton; Matsushita, Raul; Vieira, Cristiana; Correa, Ana; De Faveri, Dinorá |
| 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 |
| JEL: | D03 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79518&r=neu |
| By: | Da Silva, Sergio; De Faveri, Dinorá; Correa, Ana; Matsushita, Raul |
| Abstract: | We investigate to what extent high-income consumers are less hyperbolic than low-income consumers using a sample of 216 bank customers and 796 undergraduates. We assess whether participants who scored lower on a test of cognitive ability were also those who tended to discount the future hyperbolically. Our problem is then to find whether lower cognitive ability translates into hyperbolic discounting. The students had higher implicit discount rates, i.e. they were more hyperbolic, for both low stakes and high stakes when long delays were involved, a result in line with the literature. The undergraduates tended to be hyperbolic regardless of stake size, whereas the bank customers tended to be hyperbolic only when high stakes were involved. This makes sense, as high-income consumers should be less sensitive to low stakes. The bank clients showed superior cognitive ability and this may explain why their System 2 could be more capable of overriding cognitive biases, such as the present bias. |
| Keywords: | hyperbolic discounting, cognitive ability, high-income consumers, behavioral economics |
| JEL: | D03 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79536&r=neu |