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Risk of Over-Indebtedness and Behavioural Factors

In: Risk Tolerance in Financial Decision Making

Author

Listed:
  • Luisa Anderloni
  • Daniela Vandone

Abstract

Works in behavioural economics have made an important contribution in drawing attention to the role played not only by socio-demographic and economic variables, but also by behavioural factors as determinants of the demand for debt. As explained in Chapter 2, empirical analyses show that household debt demand seems less rational but more driven by emotional factors, such as overconfidence, impulsivity in consumption attitudes, social comparison and myopia; that is, the inability to perceive the long run consequences of today’s debt decisions. Such behavioural factors may induce individuals to make ‘non-rational’ borrowing choices and this may lead them to hold a level of debt that is unsustainable in relation to their earnings. In turn, such a situation may cause over-indebtedness.

Suggested Citation

  • Luisa Anderloni & Daniela Vandone, 2011. "Risk of Over-Indebtedness and Behavioural Factors," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Caterina Lucarelli & Gianni Brighetti (ed.), Risk Tolerance in Financial Decision Making, chapter 4, pages 113-132, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-30382-9_5
    DOI: 10.1057/9780230303829_5
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    Citations

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    Cited by:

    1. Lim, Sung Soo & Bone, Matthew, 2022. "Optimism, debt accumulation, and business growth," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 97(C).
    2. Rendall, Stella & Brooks, Chris & Hillenbrand, Carola, 2021. "The impacts of emotions and personality on borrowers’ abilities to manage their debts," International Review of Financial Analysis, Elsevier, vol. 74(C).
    3. Michael Goedde-Menke & Carsten Erner & Michael Oberste, 2017. "Towards more sustainable debt attitudes and behaviors: the importance of basic economic skills," Journal of Business Economics, Springer, vol. 87(5), pages 645-668, July.
    4. Marco Brandolini & Federica Coroneo & Elena Giarda & Cristiana Moriconi & Sarah Grace See, 2022. "Differences in Perceptions of the Housing Cost Burden Among European Countries," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 12(4), pages 1-5.
    5. Maria Forlicz & Tomasz Rolczynski, 2020. "Relationship Between Personal Debt Arrears and Risk Attitude– Cross Country Evidence," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 586-599.

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