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Measuring Aversion to Debt: An Experiment Among Student Loan Candidates

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  • Gregorio Caetano

    (University of Georgia)

  • Miguel Palacios

    (University of Calgary)

  • Harry A. Patrinos

    (The World Bank)

Abstract

Debt aversion, an unwillingness to enter into a financial contract framed or labeled as debt, distorts household investment and financing decisions. We test through an experiment for the presence of debt aversion among a relevant population. The tests allow us to identify two sources of debt aversion: one due to framing (as debt or as an income-contingent contract) and another due to labeling (as a loan or as a human capital contract). Most of the debt aversion we identified was due to labeling. Labeling a contract as a loan decreased its probability of being chosen over a financially equivalent contract and increased its perceived cost.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:jfamec:v:40:y:2019:i:1:d:10.1007_s10834-018-9601-8
    DOI: 10.1007/s10834-018-9601-8
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