NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

How Do Individuals Repay Their Debt? The Balance-Matching Heuristic

John Gathergood, Neale Mahoney, Neil Stewart, Joerg Weber

NBER Working Paper No. 24161
Issued in December 2017, Revised in August 2018
NBER Program(s):The Corporate Finance Program, The Industrial Organization Program, The Labor Studies Program, The Public Economics Program

We study how individuals repay their debt using linked data on multiple credit cards. Repayments are not allocated to the higher interest rate card, which would minimize the cost of borrowing. Moreover, the degree of misallocation is invariant to the economic stakes, which is inconsistent with optimization frictions. Instead, we show that repayments are consistent with a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. Balance matching captures more than half of the predictable variation in repayments and is highly persistent within individuals over time.

download in pdf format
   (971 K)

email paper

A non-technical summary of this paper is available in the February 2018 NBER Digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24161

Published: John Gathergood & Neale Mahoney & Neil Stewart & Jörg Weber, 2019. "How Do Individuals Repay Their Debt? The Balance-Matching Heuristic," American Economic Review, vol 109(3), pages 844-875. citation courtesy of

Users who downloaded this paper also downloaded* these:
Allcott, Diamond, Dubé, Handbury, Rahkovsky, and Schnell w24094 Food Deserts and the Causes of Nutritional Inequality
Marx and Turner w24060 Student Loan Nudges: Experimental Evidence on Borrowing and Educational Attainment
Jordà, Knoll, Kuvshinov, Schularick, and Taylor w24112 The Rate of Return on Everything, 1870–2015
Davis and Ferreira w24140 Housing Disease and Public School Finances
Boz, Gopinath, and Plagborg-Møller w23988 Global Trade and the Dollar
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us