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Time inconsistency and overdraft use: Evidence from transaction data and behavioral measurement experiments

Author

Listed:
  • Gill, Andrej
  • Hett, Florian
  • Tischer, Johannes
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

  • Gill, Andrej & Hett, Florian & Tischer, Johannes, 2022. "Time inconsistency and overdraft use: Evidence from transaction data and behavioral measurement experiments," Discussion Papers 18/2022, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:182022
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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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