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Positive illusions and the temptation to borrow

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  • Kløve, Eva

    (World Bank Group)

  • Mehlum, Halvor

    (Dept. of Economics, University of Oslo)

Abstract

We provide an explanation of the low willingness to save that is observed in many poor countries. Our explanation is based on the hypothesis that People have an over-optimistic outlook. As discussed in the psychological literature,an illusionary positive view of the future may be a good thing. However, we show that it can lead individuals to accumulate unsustainable levels of debt.Using survey data from South Africa, we confirm that poor people are indeed overly optimistic, and also that optimism is positively and significantly related to debt accumulation.

Suggested Citation

  • Kløve, Eva & Mehlum, Halvor, 2017. "Positive illusions and the temptation to borrow," Memorandum 07/2017, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2017_007
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    References listed on IDEAS

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    More about this item

    Keywords

    poverty; savings; discounting; debt;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D30 - Microeconomics - - Distribution - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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