Bakó, Barna and Neszveda, Gábor (2015) The effect of focusing on loan decisions. Working Paper. Department of Microeconomics, Corvinus University of Budapest. (Submitted)
 | There is a more recent version of this item available. |
|
PDF
- Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
423kB |
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. We claim however, that consumers are more prudent in their decisions and might be less likely to take out such loans when the usual fixed- and increasing-installment plans are coupled with a decreasing-installment option. We argue that harmful loan consumption, especially in the case of loans with increasing-installments (e.g. alternative mortgage loans), could be decreased if a policy would prescribe presentation of loan repayment schedules in a way that employs this effect. Moreover, using the model of focus-weighted utility we give a possible explanation for the unpopularity of decreasing-installment plans, the success of increasing-installment plans and their higher default rate during the financial crisis.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Uncontrolled Keywords: | focus weighted utility, loan decisions, welfare analysis |
| JEL classification: | D03 - Behavioral Microeconomics: Underlying Principles |
| Divisions: | Faculty of Economics > Department of Microeconomics |
| Subjects: | Economics |
| Projects: | MTA-BCE 'Lendulet" Strategic Interactions Research Group |
| References: | |
| ID Code: | 1999 |
| Deposited By: | Barna Bakó |
| Deposited On: | 28 Jul 2015 09:49 |
| Last Modified: | 28 Jul 2015 09:49 |
Available Versions of this Item
- The effect of focusing on loan decisions. (deposited 28 Jul 2015 09:49) [Currently Displayed]
Repository Staff Only: item control page
Download Statistics
Download Statistics