Present-Biased Preferences and Credit Card Borrowing

Abstract

Some individuals borrow extensively on their credit cards. This paper tests whether present-biased time preferences correlate with credit card borrowing. In a field study, we elicit individual time preferences with incentivized choice experiments, and match resulting time preference measures to individual credit reports and annual tax returns. The results indicate that present-biased individuals are more likely to have credit card debt, and have significantly higher amounts of credit card debt, controlling for disposable income, other socio-demographics, and credit constraints.

Keywords: time preferences, dynamic inconsistency, credit card borrowing, field experiment

JEL Classification: D12, D14, D91, C93