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

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 borrowers have especially low liquidity just before getting a loan, but their spending is not especia...

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Main Authors: Leandro Carvalho, Arna Olafsson, Dan Silverman
Format: Report
Language:unknown
Subjects:
Iceland
Online Access:http://www.nber.org/papers/w26328.pdf
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spelling ftrepec:oai:RePEc:nbr:nberwo:26328 2024-04-14T08:13:40+00:00 Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers Leandro Carvalho Arna Olafsson Dan Silverman http://www.nber.org/papers/w26328.pdf unknown http://www.nber.org/papers/w26328.pdf preprint ftrepec 2024-03-19T10:37:22Z 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 borrowers have especially low liquidity just before getting a loan, but their spending is not especially low in the days before the loan arrives and some spend a substantial fraction of the loans on seemingly inessential items. 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. Report Iceland RePEc (Research Papers in Economics)
institution Open Polar
collection RePEc (Research Papers in Economics)
op_collection_id ftrepec
language unknown
description 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 borrowers have especially low liquidity just before getting a loan, but their spending is not especially low in the days before the loan arrives and some spend a substantial fraction of the loans on seemingly inessential items. 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.
format Report
author Leandro Carvalho
Arna Olafsson
Dan Silverman
spellingShingle Leandro Carvalho
Arna Olafsson
Dan Silverman
Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers
author_facet Leandro Carvalho
Arna Olafsson
Dan Silverman
author_sort Leandro Carvalho
title Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers
title_short Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers
title_full Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers
title_fullStr Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers
title_full_unstemmed Misfortune and Mistake: The Financial Conditions and Decision-making Ability of High-cost Loan Borrowers
title_sort misfortune and mistake: the financial conditions and decision-making ability of high-cost loan borrowers
url http://www.nber.org/papers/w26328.pdf
genre Iceland
genre_facet Iceland
op_relation http://www.nber.org/papers/w26328.pdf
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