Discounting and Defaulting: Evidence from Time Preference Experiments and Administrative Credit Data

File(s)
Date
2010Author
Meier, Stephan
Sprenger, Charles
Publisher
Center for Financial Security
Metadata
Show full item recordAbstract
Prior empirical analyses of credit default demonstrate the importance of policy-driven differences in costs and benefits. However, little is known about individual determinants of default within a given institutional setting. Theoretically the defaulting decision is inter-temporal in nature: present benefits of default are weighed against discounted delayed costs. We empirically test the relationship between discounting and defaulting by matching experimentally elicited time preference measures to credit reports and tax data. Within a common institutional setting and controlling for socio-demographics, debt levels, buffers against income shocks, and credit constraints, the results show substantial correlation between discounting and defaulting.
Subject
Time Preferences
Defaulting
Field Experiment
Permanent Link
http://digital.library.wisc.edu/1793/90761Type
Working Paper
Description
This paper links experimentally measured differences in time preferences to objectively measured differences in defaulting behavior.
Citation
Meier, S., & Sprenger, C. (2010). Discounting and Defaulting: Evidence from Time Preference Experiments and Administrative Credit Data. Center for Financial Security .