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Time Inconsistency and Overdraft Use: Evidence from Transaction Data and Behavioral Measurement Experiments

Author

Listed:
  • Andrej Gill

    (Johannes Gutenberg University Mainz)

  • Florian Hett

    (Johannes Gutenberg University Mainz)

  • Johannes Tischer

    (Deutsche Bundesbank)

Abstract

Households regularly fail to make optimal financial decisions. But what are the underlying reasons for this? Using two conceptually distinct measures of time inconsistency based on bank account transaction data and behavioral measurement experiments, we show that the excessive use of bank account overdrafts is linked to time inconsistency. By contrast, there is no correlation between a survey-based measure of financial literacy and overdraft usage. Our results indicate that consumer education and information may not suffice to overcome mistakes in households’ financial decision-making. Rather, behaviorally motivated interventions targeting specific biases in decision-making should also be considered as effective policy tools.

Suggested Citation

  • Andrej Gill & Florian Hett & Johannes Tischer, 2022. "Time Inconsistency and Overdraft Use: Evidence from Transaction Data and Behavioral Measurement Experiments," Working Papers 2205, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    • Handle: RePEc:jgu:wpaper:2205
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    More about this item

    Keywords

    Household Finance; Paycheck Sensitivity; Fintech; Time Inconsistency; Time Preferences; Experiment; Behavioral Measurement;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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