Present-Biased Preferences and Credit Card Borrowing

TLDR

Credit card borrowing is common among some individuals. The study examines whether present‑biased time preferences are associated with credit card borrowing. The authors measured time preferences through incentivized choice experiments and linked the results to credit reports and tax returns. Present‑biased individuals are more likely to carry credit card debt and owe higher amounts, even after controlling for income, demographics, and credit constraints. JEL codes: D12, D14, D91.

Abstract

Some individuals borrow extensively on their credit cards. This paper tests whether present-biased time preferences correlate with credit card borrowing. In a field study, we elicit individual time preferences with incentivized choice experiments, and match resulting time preference measures to individual credit reports and annual tax returns. The results indicate that present-biased individuals are more likely to have credit card debt, and to have significantly higher amounts of credit card debt, controlling for disposable income, other socio-demographics, and credit constraints. (JEL D12, D14, D91)