Time Inconsistency and Overdraft Use: Evidence from Transaction Data and Behavioral Measurement Experiments

87 Pages Posted: 6 Apr 2022

See all articles by Florian Hett

Florian Hett

Johannes Gutenberg University Mainz - Faculty of Law and Economics

Andrej Gill

Johannes Gutenberg University Mainz

Johannes Tischer

Deutsche Bundesbank

Date Written: March 31, 2022

Abstract

Households regularly fail to make optimal financial decisions. But what are the underlying reasons for this? Using two conceptually distinct measures of time inconsistency based on bank account transaction data and behavioral measurement experiments, we show that the excessive use of bank account overdrafts is linked to time inconsistency. By contrast, there is no correlation between a survey-based measure of financial literacy and overdraft usage. Our results indicate that consumer education and information may not suffice to overcome mistakes in households’ financial decision-making. Rather, behaviorally motivated interventions targeting specific biases in decision-making should also be considered as effective policy tools.

Keywords: Household Finance, Paycheck Sensitivity, Fintech, Time Inconsistency, Time Preferences, Experiment, Behavioral Measurement

JEL Classification: D14, D90, G51, G53

Suggested Citation

Hett, Florian and Gill, Andrej and Tischer, Johannes, Time Inconsistency and Overdraft Use: Evidence from Transaction Data and Behavioral Measurement Experiments (March 31, 2022). SAFE Working Paper No. 347, Available at SSRN: https://ssrn.com/abstract=4076790 or http://dx.doi.org/10.2139/ssrn.4076790

Florian Hett (Contact Author)

Johannes Gutenberg University Mainz - Faculty of Law and Economics ( email )

Chair of Corporate Finance
D-55099 Mainz, 55128
Germany

Andrej Gill

Johannes Gutenberg University Mainz ( email )

Saarstr. 21
Jakob Welder-Weg 4
Mainz, 55122
Germany

Johannes Tischer

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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