Present-bias in different income groups

B. Can, O. Erdem

Research output: Working paper / PreprintWorking paper

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The excessive use of credit cards and increasing consumer borrowing has been a major problem.
Laibson (1997) suggests the present-bias problem as one of the driving forces of excessive borrowing. Shefrin and Thaler (1988) suggest that self-control underlies national borrowing/savings
rate. We conduct a survey to check for present-bias as well as self-control problems among individuals in Turkey. Our findings show that different income groups have similar discount factors,
i.e., impatience levels, but very different degrees of dynamic inconsistencies, i.e. present-bias
levels. In particular, 29.4% of low-income individuals exhibit present-bias whereas this is down
to 6.4% for high-income individuals. Using the parameters we achieve through the surveys,
policymakers can design appropriate commitment devices for time-inconsistent individuals to
ensure a sustainable level of aggregate saving and financial investment.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
Publication statusPublished - 1 Jan 2013

Publication series

SeriesGSBE Research Memoranda

JEL classifications

  • c93 - Field Experiments
  • d14 - Personal Finance
  • d91 - "Intertemporal Consumer Choice; Life Cycle Models and Saving"

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