IDEAS home Printed from https://ideas.repec.org/a/kap/empiri/v51y2024i2d10.1007_s10663-024-09609-z.html
   My bibliography  Save this article

Debiasing the availability heuristic in student loan decision-making

Author

Listed:
  • Manuel Salas-Velasco

    (University of Granada)

Abstract

The availability heuristic is a cognitive bias that affects various aspects of decision-making, including financial decisions. Based on a randomized controlled experiment, this study assesses the effectiveness of a debiasing treatment designed to prevent the effect of the availability heuristic in student loan decision-making. Experimental subjects were explained that there is a bias that may affect the decision of whether or not to pursue a master’s degree and take out a graduate loan to finance it, and they were recommended to base their decision on reliable and verified sources of information as well as expert advice. This specific debiasing strategy is tested empirically. Specifically, this study shows positive causal effects of the debiasing intervention on two indices of student loan decision-making, which were constructed as summary indicators of student loan debt attitude, the perception that significant referents approve the student loan indebtedness, financial self-efficacy in student loan decision-making, and graduate loan borrowing intention. The article highlights the need for higher education institutions seeking to make financial education effective to be concerned with reporting on (and raising awareness of) psychological factors that are present in making financial decisions as well.

Suggested Citation

  • Manuel Salas-Velasco, 2024. "Debiasing the availability heuristic in student loan decision-making," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(2), pages 501-528, May.
  • Handle: RePEc:kap:empiri:v:51:y:2024:i:2:d:10.1007_s10663-024-09609-z
    DOI: 10.1007/s10663-024-09609-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10663-024-09609-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s10663-024-09609-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gregorio Caetano & Miguel Palacios & Harry A. Patrinos, 2019. "Measuring Aversion to Debt: An Experiment Among Student Loan Candidates," Journal of Family and Economic Issues, Springer, vol. 40(1), pages 117-131, March.
    2. Kaiser, Tim & Lusardi, Annamaria & Menkhoff, Lukas & Urban, Carly, 2022. "Financial education affects financial knowledge and downstream behaviors," Journal of Financial Economics, Elsevier, vol. 145(2), pages 255-272.
    3. Cox, James C. & Kreisman, Daniel & Dynarski, Susan, 2020. "Designed to fail: Effects of the default option and information complexity on student loan repayment," Journal of Public Economics, Elsevier, vol. 192(C).
    4. Diana C. Mutz & Robin Pemantle & Philip Pham, 2019. "The Perils of Balance Testing in Experimental Design: Messy Analyses of Clean Data," The American Statistician, Taylor & Francis Journals, vol. 73(1), pages 32-42, January.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. Elizabeth Burland & Susan Dynarski & Katherine Michelmore & Stephanie Owen & Shwetha Raghuraman, 2023. "The Power of Certainty: Experimental Evidence on the Effective Design of Free Tuition Programs," American Economic Review: Insights, American Economic Association, vol. 5(3), pages 293-310, September.
    7. Haultain, Steve & Kemp, Simon & Chernyshenko, Oleksandr S., 2010. "The structure of attitudes to student debt," Journal of Economic Psychology, Elsevier, vol. 31(3), pages 322-330, June.
    8. Furnham, Adrian & Boo, Hua Chu, 2011. "A literature review of the anchoring effect," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(1), pages 35-42, February.
    9. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    10. Matthew Wiswall & Basit Zafar, 2015. "Determinants of College Major Choice: Identification using an Information Experiment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 791-824.
    11. Susan Dynarski & CJ Libassi & Katherine Michelmore & Stephanie Owen, 2021. "Closing the Gap: The Effect of Reducing Complexity and Uncertainty in College Pricing on the Choices of Low-Income Students," American Economic Review, American Economic Association, vol. 111(6), pages 1721-1756, June.
    12. Nilton Porto & Soo Hyun Cho & Michael Gutter, 2021. "Student Loan Decision Making: Experience as an Anchor," Journal of Family and Economic Issues, Springer, vol. 42(4), pages 773-784, December.
    13. Harrison, Neil & Agnew, Steve & Serido, Joyce, 2015. "Attitudes to debt among indebted undergraduates: A cross-national exploratory factor analysis," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 62-73.
    14. Matthew Wiswall & Basit Zafar, 2021. "Human Capital Investments and Expectations about Career and Family," Journal of Political Economy, University of Chicago Press, vol. 129(5), pages 1361-1424.
    15. Jeffrey R Kling & Jeffrey B Liebman & Lawrence F Katz, 2007. "Experimental Analysis of Neighborhood Effects," Econometrica, Econometric Society, vol. 75(1), pages 83-119, January.
    16. Julian R. Betts, 1996. "What Do Students Know about Wages? Evidence from a Survey of Undergraduates," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 27-56.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abraham, Katharine G. & Filiz-Ozbay, Emel & Ozbay, Erkut Y. & Turner, Lesley J., 2020. "Framing effects, earnings expectations, and the design of student loan repayment schemes," Journal of Public Economics, Elsevier, vol. 183(C).
    2. Henning Hermes & Philipp Lergetporer & Frauke Peter & Simon Wiederhold, 2024. "Application Barriers and the Socioeconomic Gap in Child Care Enrollment," Working Papers 2024-022, Human Capital and Economic Opportunity Working Group.
    3. Henning Hermes & Philipp Lergetporer & Frauke Peter & Simon Wiederhold, 2021. "Application Barriers and the Socioeconomic Gap in Child Care Enrollment," CESifo Working Paper Series 9282, CESifo.
    4. Hermes, Henning & Lergetporer, Philipp & Peter, Frauke & Wiederhold, Simon, 2021. "Behavioral Barriers and the Socioeconomic Gap in Child Care Enrollment," IZA Discussion Papers 14698, Institute of Labor Economics (IZA).
    5. Marcelo Gantier & Rafael Novella & Andrea Repetto, 2024. "Subjective expectations and schooling choices in Latin America and the Caribbean," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(3), pages 1593-1621, April.
    6. Claire Callender & Geoff Mason, 2017. "Does Student Loan Debt Deter Higher Education Participation? New Evidence from England," The ANNALS of the American Academy of Political and Social Science, , vol. 671(1), pages 20-48, May.
    7. Ze Chen & Yuan Wang & Yanjun Guan & Michael Jie Guo & Rong Xu, 2023. "Long‐term effect of childhood pandemic experience on medical major choice: Evidence from the 2003 severe acute respiratory syndrome outbreak in China," Health Economics, John Wiley & Sons, Ltd., vol. 32(5), pages 1120-1147, May.
    8. Daniel Fonseca Costa & Francisval Carvalho & Bruno César Moreira & José Willer Prado, 2017. "Bibliometric analysis on the association between behavioral finance and decision making with cognitive biases such as overconfidence, anchoring effect and confirmation bias," Scientometrics, Springer;Akadémiai Kiadó, vol. 111(3), pages 1775-1799, June.
    9. Siddiqi, Hammad, 2015. "Anchoring and Adjustment Heuristic: A Unified Explanation for Equity Puzzles," MPRA Paper 68729, University Library of Munich, Germany.
    10. Prina, Silvia, 2015. "Banking the poor via savings accounts: Evidence from a field experiment," Journal of Development Economics, Elsevier, vol. 115(C), pages 16-31.
    11. Jaison R. Abel & Richard Deitz, 2017. "Underemployment in the Early Careers of College Graduates following the Great Recession," NBER Chapters, in: Education, Skills, and Technical Change: Implications for Future US GDP Growth, pages 149-181, National Bureau of Economic Research, Inc.
    12. Xia, Xiaoyu, 2016. "Forming wage expectations through learning: Evidence from college major choices," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PA), pages 176-196.
    13. Drew M. Anderson & David B. Monaghan & Jed Richardson, 2024. "Can the Promise of Free Education Improve College Attainment? Lessons from the Milwaukee Area Technical College Promise," Research in Higher Education, Springer;Association for Institutional Research, vol. 65(8), pages 1747-1770, December.
    14. Tung Nguyen & Dimitris Petmezas & Nikolaos Karampatsas, 2023. "Does Terrorism Affect Acquisitions?," Management Science, INFORMS, vol. 69(7), pages 4134-4168, July.
    15. Cygan-Rehm, Kamila & Karbownik, Krzysztof, 2022. "The effects of incentivizing early prenatal care on infant health," Journal of Health Economics, Elsevier, vol. 83(C).
    16. Lekfuangfu, Warn N., 2022. "Mortality risk, perception, and human capital investments: The legacy of landmines in Cambodia," Labour Economics, Elsevier, vol. 78(C).
    17. Karnani, Mohit, 2016. "Freshmen teachers and college major choice: Evidence from a random assignment in Chile," MPRA Paper 76062, University Library of Munich, Germany.
    18. Pamela Giustinelli & Charles F. Manski, 2018. "Survey Measures Of Family Decision Processes For Econometric Analysis Of Schooling Decisions," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 81-99, January.
    19. Carrilho, Cauê D. & Demarchi, Gabriela & Duchelle, Amy E. & Wunder, Sven & Morsello, Carla, 2022. "Permanence of avoided deforestation in a Transamazon REDD+ project (Pará, Brazil)," Ecological Economics, Elsevier, vol. 201(C).
    20. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.

    More about this item

    Keywords

    Debiasing treatment; Experimental finance; Financial education intervention; Student loan borrower behavior;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:empiri:v:51:y:2024:i:2:d:10.1007_s10663-024-09609-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.