Sticking to Your Plan: The Role of Present Bias for Credit Card Paydown

62 Pages Posted: 6 Aug 2018

See all articles by Theresa Kuchler

Theresa Kuchler

New York University (NYU)

Michaela Pagel

Columbia University - Columbia Business School

Date Written: August 2018


Using high-frequency transaction-level income, spending, balances, and credit limits data from an online financial service, we show that many consumers fail to stick to their self-set debt paydown plans and argue that this behavior is best explained by a model of present bias. Theoretically, we show that (i) a present-biased agent's sensitivity of consumption spending to paycheck receipt reflects his or her short-run impatience and that (ii) this sensitivity varies with available resources only for agents who are aware (sophisticated) rather than unaware (naive) of their future impatience. In turn, we classify users in our data accordingly. Consistent with present bias, we find that (i) sophisticated users' average paydown falls with higher measured impatience and that (ii) their planned paydown is more predictive of actual paydown than that of naives. We are the first to provide a theoretically-founded empirical methodology to measure sophistication and naivete from spending and income data and to validate this measure using our information on planned versus actual debt paydown. Moreover, our results highlight the importance of distinguishing between sophisticated and naive present-biased individuals in understanding their financial decision making.

Suggested Citation

Kuchler, Theresa and Pagel, Michaela, Sticking to Your Plan: The Role of Present Bias for Credit Card Paydown (August 2018). NBER Working Paper No. w24881, Available at SSRN:

Theresa Kuchler (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Michaela Pagel

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics