When irrelevant alternatives do matter. The effect of focusing on loan decisions.
- Author(s)
- Barna Bakó, Gábor Neszveda, Linda Dezsö
- Abstract
In this paper, we investigate some implications of recent results about salience on loan decisions. Using the framework of focus-weighted utility we show that consumers might take out loans even when that yield them negative utility due to the focusing bias. We suggest, however, that this can be counterbalanced and consumers might be more prudent in their decisions and less likely to take out such loans when the usual fixed-installments plan is coupled with an equivalent decreasing-installments option. Moreover, we show that this is true even for loans with prepayment options or when borrowers take default into consideration. We argue that harmful loan consumption could be decreased if a policy would prescribe presentation of loan repayment schedules in a way that employs this effect.
- Organisation(s)
- Department of Occupational, Economic and Social Psychology
- External organisation(s)
- Tilburg University, Corvinus University of Budapest
- Journal
- Theory and Decision
- Volume
- 84
- Pages
- 123-141
- No. of pages
- 19
- ISSN
- 0040-5833
- DOI
- https://doi.org/10.1007/s11238-017-9641-9
- Publication date
- 01-2018
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502025 Econometrics, 502021 Microeconomics, 501029 Economic psychology
- Keywords
- ASJC Scopus subject areas
- General Social Sciences, Economics, Econometrics and Finance(all), Developmental and Educational Psychology, Arts and Humanities (miscellaneous), General Decision Sciences, Applied Psychology, Computer Science Applications
- Portal url
- https://ucrisportal.univie.ac.at/en/publications/12a754c5-12bd-4bf4-a5b9-ad96e4a4c105