Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers

Leandro Carvalho, Arna Olafsson, Dan Silverman

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstract

The appropriateness of many high-cost loan regulations depends on whether demand is driven by financial conditions (“misfortunes”) or imperfect decisions (“mistakes”). Bank records from Iceland show that borrowers have especially low liquidity just before getting a loan. Borrowers exhibit lower decision-making ability (DMA) in linked-choice experiments: 45% of loan dollars go to the bottom 20% of the DMA distribution. Standard determinants of demand do not explain this relationship, which is also mirrored by the relationship between DMA and an unambiguous mistake. Both misfortune and mistake thus appear to drive demand.
OriginalsprogEngelsk
TidsskriftJournal of Political Economy
Vol/bind132
Udgave nummer9
Sider (fra-til)3173-3213
Antal sider41
ISSN0022-3808
DOI
StatusUdgivet - sep. 2024

Bibliografisk note

Published online: 14 August 2024.

Citationsformater