Do Physiological and Spiritual Factors Affect Economic Decisions?

Abstract

We examine the effects of physiology and spiritual sentiment on economic decision-making in the context of Ramadan, an entire lunar month of daily fasting and increased spiritual reflection in the Muslim faith. Using an administrative data set of bank loans originated in Turkey during 2003-2013, we find that small business loans originated during Ramadan are 12 to 17 percent more likely to become delinquent within two years of origination. We find no Ramadan effect for personal loans which are mostly automated, or large business loans where approval decisions are made by credit committees. Loans originated in hot summer Ramadans, when adverse physiological effects of fasting are greatest, and those approved by the busiest bank branches perform worse. Charitable lending does not appear to be a key driver of the Ramadan effect. Despite their worse performance, Ramadan loans have lower credit spreads.

Keywords: Ramadan; fasting; nutrition; spiritual sentiment; judgment errors; bank lending; religion; religious practice

JEL Classification: G02; G21; Z12