Present Bias and Financial Behavior

Abstract

Present bias is an important term in behavioral finance that is derived from the concept of self-control. Empirical research finds that present bias is associated with undesirable spending, borrowing, and saving behavior. Unlike previous research that focuses on one domain of financial behavior, the purpose of this study is to examine associations between present bias and a set of financial behaviors in various domains such as spending, borrowing, saving, and money management. With data from a national urban sample in China, results show that some behavioral patterns are consistent with theoretical predictions that present biased consumers are more likely to spend now and less likely to save. The findings have implications for further research of present bias to better understand this important concept and for financial advisors to better serve their clients.

Keywords: present bias, self control, behavioral finance, financial behavior

JEL Classification: D12, D14, D91