Measuring Time Preferences Using Stated Credit Repayment Choices

Abstract

This paper explores consumers’ repayment decisions and their time preferences. We do this through a hypothetical study using a stated-preference approach. In our experiment, participants are asked to make repayment decisions over time, under different loan sizes. We report five choice trajectories: minimum delay, monotonically decreasing, trajectory with one contradicting choice, trajectory with more than one contradicting choice, and maximum delay. These choice trajectories are taken into account in our modelling approach. Our analysis uses choice models that jointly estimate the discount rate and the probability of choice trajectories. Observed heterogeneity in repayment behaviour is further analysed using sociodemographic factors, and tested for the two loan sizes. We report heterogeneity in consumer repayment decisions, and what happens in the decision-making process for participants in different sociodemographic groups, for different loan sizes. These findings suggest that decision-makers can tailor their strategy for mitigating consumer debts by targeting different groups in the population demonstrating different choice behaviour and decision-making.