How do individuals repay their debt?: the balance-matching heuristic
We study how individuals repay their debt using linked data on multiple credit cards. Repayments are not allocated to the higher interest rate card, which would minimize the cost of borrowing. Moreover, the degree of misallocation is invariant to the economic stakes, which is inconsistent with optim...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
American Economic Association
2018
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| Online Access: | https://eprints.nottingham.ac.uk/54171/ |
| _version_ | 1848799022377074688 |
|---|---|
| author | Gathergood, John Mahoney, Neale Stewart, Neil Weber, Jörg |
| author_facet | Gathergood, John Mahoney, Neale Stewart, Neil Weber, Jörg |
| author_sort | Gathergood, John |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | We study how individuals repay their debt using linked data on multiple credit cards. Repayments are not allocated to the higher interest rate card, which would minimize the cost of borrowing. Moreover, the degree of misallocation is invariant to the economic stakes, which is inconsistent with optimization frictions. Instead, we show that repayments are consistent with a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. Balance matching captures more than half of the predictable variation in repayments and is highly persistent within individuals over time. |
| first_indexed | 2025-11-14T20:29:03Z |
| format | Article |
| id | nottingham-54171 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T20:29:03Z |
| publishDate | 2018 |
| publisher | American Economic Association |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-541712018-09-11T10:46:57Z https://eprints.nottingham.ac.uk/54171/ How do individuals repay their debt?: the balance-matching heuristic Gathergood, John Mahoney, Neale Stewart, Neil Weber, Jörg We study how individuals repay their debt using linked data on multiple credit cards. Repayments are not allocated to the higher interest rate card, which would minimize the cost of borrowing. Moreover, the degree of misallocation is invariant to the economic stakes, which is inconsistent with optimization frictions. Instead, we show that repayments are consistent with a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. Balance matching captures more than half of the predictable variation in repayments and is highly persistent within individuals over time. American Economic Association 2018-08-14 Article PeerReviewed application/pdf en https://eprints.nottingham.ac.uk/54171/1/wrongcard_paper.pdf Gathergood, John, Mahoney, Neale, Stewart, Neil and Weber, Jörg (2018) How do individuals repay their debt?: the balance-matching heuristic. American Economic Review . ISSN 0002-8282 (In Press) https://www.aeaweb.org/articles?id=10.1257/aer.20180288&&from=f |
| spellingShingle | Gathergood, John Mahoney, Neale Stewart, Neil Weber, Jörg How do individuals repay their debt?: the balance-matching heuristic |
| title | How do individuals repay their debt?: the balance-matching heuristic |
| title_full | How do individuals repay their debt?: the balance-matching heuristic |
| title_fullStr | How do individuals repay their debt?: the balance-matching heuristic |
| title_full_unstemmed | How do individuals repay their debt?: the balance-matching heuristic |
| title_short | How do individuals repay their debt?: the balance-matching heuristic |
| title_sort | how do individuals repay their debt?: the balance-matching heuristic |
| url | https://eprints.nottingham.ac.uk/54171/ https://eprints.nottingham.ac.uk/54171/ |