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Impulsivity and household indebtedness

Author

Listed:
  • Cristina Ottaviani

    (University of Bologna)

  • Daniela Vandone

    (University of Milan)

Abstract

Using a probit model we empirically estimated the role of emotional factors in determining household participation in the debt market, after controlling for traditional economic predictors, such as age, level of education, income, wealth, and work status. A sample of 445 Caucasian subjects, randomly selected among full time employed at international asset management companies, underwent the Barratt Impulsiveness Scale, the Iowa Gambling Task (IGT) coupled with skin conductance recording, and a series of questions related to their demographic-socio economical profile. Aside from confirming the role played by the traditional explanatory variables commonly used as determinants of household indebtedness, results revealed the significant influence of individuals’ impulsivity in debt decisions. Specifically, the motor component of impulsivity predicted unsecured debt (i.e. consumer credit), while the non planning component was related to secured debt (i.e. mortgages). On the contrary, the presence of a somatic marker to guide decisions at the IGT did not predict real life indebtedness decisions in this non clinical sample. The notion that “non rational” factors influence debt demand has been largely ignored and raises concerns about the risk of over-indebtedness for impulsive individuals.

Suggested Citation

  • Cristina Ottaviani & Daniela Vandone, 2010. "Impulsivity and household indebtedness," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1105, Universitá degli Studi di Milano.
    • Handle: RePEc:bep:unimip:unimi-1105
    Note: oai:cdlib1:unimi-1105
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    Cited by:

    1. Dick, Christian D. & Jaroszek, Lena M., 2013. "Knowing what not to do: Financial literacy and consumer credit choices," ZEW Discussion Papers 13-027, ZEW - Leibniz Centre for European Economic Research.
    2. Barbara Cavalletti & Corrado Lagazio & Elena Lagomarsino & Daniela Vandone, 2020. "Consumer Debt and Financial Fragility: Evidence from Italy," Journal of Consumer Policy, Springer, vol. 43(4), pages 747-765, December.
    3. Maria Czech & Blandyna Puszer, 2021. "Impact of the COVID-19 Pandemic on the Consumer Credit Market in V4 Countries," Risks, MDPI, vol. 9(12), pages 1-19, December.
    4. Lusardi, Annamaria & Mitchell, Olivia S. & Oggero, Noemi, 2019. "Debt close to retirement and its implications for retirement well-being," CFS Working Paper Series 631, Center for Financial Studies (CFS).

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