Journal article

Authors list: Gärtner, Florian; Semmler, Darwin; Bannier, Christina E.

Publication year: 2023

Pages: 28-43

Journal: Journal of Economic Behavior & Organization

Volume number: 205

ISSN: 0167-2681

eISSN: 1879-1751

DOI Link: https://doi.org/10.1016/j.jebo.2022.10.032

Publisher: Elsevier

Abstract: 

How do borrowers repay their debts? In two simple debt repayment experiments, we elicit different types of severe deviations from optimal, i.e. debt minimizing, repayment deci-sions. We show how these deviations can be triggered using supposedly irrelevant infor-mation and find evidence for a novel heuristic, the "Cuckoo Fallacy", which is based on the amount of new debt rather than the interest rate. We also demonstrate that simple fram-ing can decrease repayment misallocation, nudging borrowers to more optimal behavior. Our results inform scholars and policy makers on how to improve household's financial decisions.

Harvard Citation style: Gärtner, F., Semmler, D. and Bannier, C. (2023) What could possibly go wrong? Predictable misallocation in simple debt repayment experiments, Journal of Economic Behavior & Organization, 205, pp. 28-43. https://doi.org/10.1016/j.jebo.2022.10.032

APA Citation style: Gärtner, F., Semmler, D., & Bannier, C. (2023). What could possibly go wrong? Predictable misallocation in simple debt repayment experiments. Journal of Economic Behavior & Organization. 205, 28-43. https://doi.org/10.1016/j.jebo.2022.10.032