Hostname: page-component-7b9c58cd5d-hpxsc Total loading time: 0 Render date: 2025-03-15T16:03:21.641Z Has data issue: false hasContentIssue false
  • English
  • Français

Intertemporal consumption and debt aversion: an experimental study

Published online by Cambridge University Press:  14 March 2025

Thomas Meissner
Thomas Meissner*
Affiliation:
Berlin University of Technology, Strasse des 17. Juni 135, 10623 Berlin, Germany Grenoble Ecole de Management, 12 Rue Pierre Semard, 38000 Grenoble, France
*
[email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper tests how subjects behave in an intertemporal consumption/saving experiment when borrowing is allowed and whether subjects treat debt differently than savings. Two treatments create environments where either saving or borrowing is required for optimal consumption. Since both treatments share the same optimal consumption levels, observed consumption choices can be directly compared across treatments. The experimental findings imply that deviations from optimal behavior are higher when subjects have to borrow than when they have to save in order to consume optimally, suggesting debt aversion. Signifiant under-consumption is observed when subjects have to borrow in order to reach optimal consumption. In line with previous experiments, weak evidence is found suggesting that subjects over-consume when saving is necessary for optimal consumption.

Keywords

Laboratory experimentIntertemporal consumptionConsumption smoothingDebt aversion

JEL classification

E21: Consumption • Saving • Wealth C91: Laboratory, Individual Behavior D91: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Type
Original Paper
Information
Experimental Economics , Volume 19 , Issue 2 , June 2016 , pp. 281 - 298
Copyright
Copyright © 2015 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

Electronic supplementary material The online version of this article (doi:https://doi.org/10.1007/s10683-015-9437-0) contains supplementary material, which is available to authorized users.

References

Ballinger, TP, Palumbo, MG, & Wilcox, NT (2003). Precautionary saving and social learning across generations: An experiment. The Economic Journal, 113(490), 920–947. 10.1111/1468-0297.t01-1-00158CrossRefGoogle Scholar
Ballinger, TP, Hudson, E, Karkoviata, L, & Wilcox, NT (2011). Saving behavior and cognitive abilities. Experimental Economics, 14(3), 349–374. 10.1007/s10683-010-9271-3CrossRefGoogle Scholar
Brown, AL, Chua, ZE, & Camerer, CF (2009). Learning and visceral temptation in dynamic saving experiments. The Quarterly Journal of Economics, 124(1), 197–231. 10.1162/qjec.2009.124.1.197CrossRefGoogle Scholar
Caballero, R. J. (1990). Consumption puzzles and precautionary savings. Journal of Monetary Economics, 25(1), 113–136.CrossRefGoogle Scholar
Caballero, RJ (1991). Earnings uncertainty and aggregate wealth accumulation. The American Economic Review, 81, 859–871.Google Scholar
Caetano, G., Palacios, M., & Patrinos, H. (2011). Measuring aversion to debt: An experiment among student loan candidates. World Bank Policy Research Working Paper Series.CrossRefGoogle Scholar
Carbone, E (2006). Understanding intertemporal choices. Applied Economics, 38(8), 889–898. 10.1080/00036840500399313CrossRefGoogle Scholar
Carbone, E., & Duffy, J. (2013). Lifecycle consumption plans, social learning and external habits: Experimental evidence. Working paper.Google Scholar
Carbone, E, & Hey, JD (2004). The effect of unemployment on consumption: An experimental analysis. The Economic Journal, 114(497), 660–683. 10.1111/j.1468-0297.2004.00236.xCrossRefGoogle Scholar
Duffy, J. (2012). Macroeconomics: A survey of laboratory research. Handbook of Experimental Economics 2.Google Scholar
Eckel, CC, Johnson, C, Montmarquette, C, & Rojas, C (2007). Debt aversion and the demand for loans for postsecondary education. Public Finance Review, 35(2), 233–262. 10.1177/1091142106292774CrossRefGoogle Scholar
Fenig, G., Mileva, M., & Petersen, L. (2013). Asset trading and monetary policy in production economies. Working Paper.Google Scholar
Field, E (2009). Educational debt burden and career choice: Evidence from a financial aid experiment at NYU law school. American Economic Journal, 1(1), 1–21.Google Scholar
Fischbacher, U (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178. 10.1007/s10683-006-9159-4CrossRefGoogle Scholar
Hey, JD, & Dardanoni, V (1998). Optimal consumption under uncertainty: An experimental investigation. The Economic Journal, 98(390), 105–116. 10.2307/2233308CrossRefGoogle Scholar
Lei, V, & Noussair, CN (2002). An experimental test of an optimal growth model. The American Economic Review, 92(3), 549–570. 10.1257/00028280260136246CrossRefGoogle Scholar
Meissner, T., & Rostam-Afschar, D. (2014). Do tax cuts increase consumption? An experimental test of Ricardian Equivalence. Freie Universität Berlin, School of Business & Economics Discussion Paper 2014/16.CrossRefGoogle Scholar
Noussair, C, & Matheny, K (2000). An experimental study of decisions in dynamic optimization problems. Economic Theory, 15(2), 389–419. 10.1007/s001990050019CrossRefGoogle Scholar
Supplementary material: File

Meissner supplementary material

Supplementary Material to “Intertemporal Consumption and Debt Aversion: An Experimental Study”
Download Meissner supplementary material(File)
File 201.9 KB