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Something will turn up? Financial over-optimism and mortgage arrears

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  • Dawson, Chris
  • Henley, Andrew

Abstract

This paper investigates the association between unrealised financial expectations (over-optimism) and subsequent mortgage repayment difficulties, using British longitudinal data. Evidence is provided that an increased probability of mortgage payment difficulties post committal is associated with over-optimism prior to new mortgage advances.

Suggested Citation

  • Dawson, Chris & Henley, Andrew, 2012. "Something will turn up? Financial over-optimism and mortgage arrears," Economics Letters, Elsevier, vol. 117(1), pages 49-52.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:49-52
    DOI: 10.1016/j.econlet.2012.04.063
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    References listed on IDEAS

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    1. Gervais, Simon & Odean, Terrance, 2001. "Learning to be Overconfident," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 1-27.
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    6. Madsen, Jakob Brochner, 1994. "Tests of rationality versus an "over optimist" bias," Journal of Economic Psychology, Elsevier, vol. 15(4), pages 587-599, December.
    7. Sarah Brown & Gaia Garino & Karl Taylor & Stephen Wheatley Price, 2005. "Debt and Financial Expectations: An Individual- and Household-Level Analysis," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 100-120, January.
    8. Arabsheibani, Gholamreza & de Meza, David & Maloney, John & Pearson, Bernard, 2000. "And a vision appeared unto them of a great profit: evidence of self-deception among the self-employed," Economics Letters, Elsevier, vol. 67(1), pages 35-41, April.
    9. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Piotr Bialowolski & Dorota Weziak‐Bialowolska, 2021. "Good credit, bad credit: The differential role of the sources of debt in life satisfaction," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(3), pages 967-994, September.
    3. Papyrakis, Elissaios & Parcero, Osiris Jorge, 2022. "The psychology of mineral wealth: Empirical evidence from Kazakhstan," Resources Policy, Elsevier, vol. 77(C).
    4. Kenneth J. White & Kim Love & Megan McCoy & Miranda Reiter & Desiree M. Seponski & Janet Koposko & Erica Regan, 2022. "Factors associated with the financial strain of transgender and gender diverse college students," Journal of Consumer Affairs, Wiley Blackwell, vol. 56(4), pages 1617-1637, December.
    5. Porras-Arena, M. Sylvina & Martín-Román, Ángel L., 2019. "Self-employment and the Okun's law," Economic Modelling, Elsevier, vol. 77(C), pages 253-265.
    6. Weinstock, Eyal & Sonsino, Doron, 2014. "Are risk-seekers more optimistic? Non-parametric approach," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 236-251.
    7. Tertilt, Michèle & Exler, Florian & Livshits, Igor & MacGee, Jim, 2020. "Consumer Credit with Over-Optimistic Borrowers," CEPR Discussion Papers 15570, C.E.P.R. Discussion Papers.
    8. Ignacio Moral-Arce & Javier Martín-Román & Ángel L. Martín-Román, 2019. "Cessation of Activity Benefit for Spanish Self-employed Workers: A Heterogeneous Impact Evaluation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 231(4), pages 41-79, December.
    9. Florian Exler & Igor Livshits & James MacGee & Michele Tertilt, 2018. "Regulating Consumer Credit with Over-Optimistic Borrowers," 2018 Meeting Papers 1064, Society for Economic Dynamics.
    10. E. M. Cervellati & P. Pattitoni & M. Savioli, 2016. "Cognitive Biases and Entrepreneurial Under-Diversification," Working Papers wp1076, Dipartimento Scienze Economiche, Universita' di Bologna.
    11. Antje Berndt & Burton Hollifield & Patrik Sandås, 2021. "What Broker Charges Reveal About Subprime Mortgage Credit Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 63(2), pages 280-326, August.
    12. Aneta Maria Kłopocka & Tomasz Kopczyński & Grażyna Lenicka-Bajer, 2014. "Financial Situation And Attitudes Towards Saving In Polish Society:Evidence From Micro Data," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 0, pages 476-486, May.
    13. Sarah Brown, 2015. "Household repayment behaviour and neighbourhood effects," Urban Studies, Urban Studies Journal Limited, vol. 52(6), pages 1169-1188, May.
    14. Balasuriya, Jiayi & Gough, Orla & Vasileva, Kristina, 2014. "Do optimists plan for retirement? A behavioural explanation for non-participation in pension schemes," Economics Letters, Elsevier, vol. 125(3), pages 396-399.
    15. Marie-Noëlle Albert & Marie-Michèle Couture, 2013. "The Support to an Entrepreneur," SAGE Open, , vol. 3(2), pages 21582440134, June.

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    More about this item

    Keywords

    Financial optimism; Expectations; Mortgage arrears;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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