Lending to Sensation-Seeking Households

49 Pages Posted: 12 Aug 2016 Last revised: 24 Oct 2016

See all articles by Khrystyna Bochkay

Khrystyna Bochkay

University of Miami - School of Business Administration

Indraneel Chakraborty

University of Miami

Roman Chychyla

University of Miami - School of Business Administration

Alok Kumar

University of Miami - School of Business Administration

Date Written: October 23, 2016

Abstract

Using the propensity to engage in extra-marital activities as a proxy for sensation seeking behavior, we show that sensation-seeking households exhibit riskier economic behavior. They are more likely to obtain a home loan and, conditional upon borrowing, they choose larger loans. Banks are at least partially aware of the financial implications of sensation-seeking behavior. They supply larger credit due to higher demand, but at higher rates due to greater perceived risks. The resulting separating equilibrium has higher loan defaults as the perceived risk is realized.

Keywords: Household Credit, Mortgage, Sensation-Seeking, Local Culture, Soft Information

JEL Classification: D12, G02, G21

Suggested Citation

Bochkay, Khrystyna and Chakraborty, Indraneel and Chychyla, Roman and Kumar, Alok, Lending to Sensation-Seeking Households (October 23, 2016). Available at SSRN: https://ssrn.com/abstract=2821378 or http://dx.doi.org/10.2139/ssrn.2821378

Khrystyna Bochkay (Contact Author)

University of Miami - School of Business Administration ( email )

Coral Gables, FL 33146-6531
United States

Indraneel Chakraborty

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

Roman Chychyla

University of Miami - School of Business Administration ( email )

Coral Gables, FL 33146-6531
United States
3052842324 (Phone)

Alok Kumar

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

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