The Hidden Costs of Hidden Debt
Forthcoming in the Review of Finance
Posted: 12 May 2011 Last revised: 4 Dec 2013
Date Written: May 1, 2011
We report evidence that salience may have economically significant effects on homeowners' borrowing behavior, through a bias in favour of less salient but more costly loans. Survey evidence corroborates the existence of such a bias. We outline a simple model in which some consumers are biased and show that under plausible assumptions this affects prices in equilibrium. Market data support the predictions of the model.
Keywords: housing market, household finance, co-ops, salience
JEL Classification: D12, G14, G21. G32
Suggested Citation: Suggested Citation