Measuring Aversion to Debt : An Experiment among Student Loan Candidates
This paper reports the results of an experiment designed to test for the presence of debt aversion. The population who participated in the experiment were recent financial aid candidates and the experiment focused on student loans. The goal is to s...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110726094406 http://hdl.handle.net/10986/3499 |
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okr-10986-34992021-04-23T14:02:10Z Measuring Aversion to Debt : An Experiment among Student Loan Candidates Caetano, Gregorio Patrinos, Harry A. Palacios, Miguel ACCESS TO HIGHER EDUCATION AMOUNT OF DEBT AMOUNT OF RISK ASSET PRICES ASSET PRICING ASSETS ASYMMETRIC INFORMATION BANKRUPTCY BANKRUPTCY LAWS BORROWER BORROWING CAPITAL INVESTMENT CAPITAL RETURNS CAREER CAREER CHOICE COLLATERAL COST-SHARING CREDIT CONSTRAINTS CREDIT INSTRUMENT DEBT DEBT BURDEN DEBT CONTRACT DEMOGRAPHIC CHARACTERISTICS DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT POLICY EARNINGS ECONOMIC RESEARCH ECONOMICS LITERATURE EDUCATION COSTS EDUCATIONAL FINANCE EMPLOYMENT EQUITY INVESTMENTS FINANCIAL AID FINANCIAL CONTRACT FINANCIAL INSTITUTION FINANCIAL INSTRUMENT FINANCIAL TRANSACTION FLEXIBLE LOAN FUTURE RESEARCH GENDER HIGH SCHOOL GRADUATES HIGHER EDUCATION HIGHER EDUCATION FINANCING HUMAN CAPITAL HUMAN CAPITAL INVESTMENT HUMAN DEVELOPMENT IMPACT OF DEBT INCOME INCOME CONTINGENT LOANS INCOME LEVEL INCOME LEVELS INCOME-CONTINGENT INCOMPLETE MARKETS INFORMATION ASYMMETRY INTERNATIONAL BANK INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES INVESTMENTS IN EDUCATION LEGAL BARRIERS LEVELS OF EDUCATION LOAN CONTRACT LOANS TO STUDENTS LOCAL CURRENCIES LOCAL CURRENCY LOTTERY LOW-INCOME STUDENTS MONETARY VALUE OPEN ACCESS PAPERS PAYOFFS PORTFOLIO PORTFOLIO CHOICE POTENTIAL BORROWERS POTENTIAL INVESTORS PUBLIC EDUCATION PUBLIC FINANCE RETURN RISK-AVERSE INDIVIDUALS SHAREHOLDER STUDENT LOAN STUDENT LOANS TANGIBLE ASSET TITLE TRANSACTION TRANSFER RISK TYPES OF DEBT UNIVERSITIES VALUE OF DEBT WAGES This paper reports the results of an experiment designed to test for the presence of debt aversion. The population who participated in the experiment were recent financial aid candidates and the experiment focused on student loans. The goal is to shed new light on different aspects of the perceptions with respect to debt. These perceptions can prevent agents from choosing an optimal portfolio or from undertaking attractive investment opportunities, such as in education. The study design disentangles two types of debt aversion: one that is studied in the previous literature, which encompasses both framing and labeling effects, and another that controls for framing effects and identifies only what we denote labeling debt aversion. The results suggest that participants in the experiment exhibit debt aversion, and most of the debt aversion is due to labeling effects. Labeling a contract as a "loan"' decreases its probability of being chosen over a financially equivalent contract by more than 8 percent. The analysis also provides evidence that students are willing to pay a premium of about 4 percent of the financed value to avoid a contract labeled as debt. 2012-03-19T18:03:33Z 2012-03-19T18:03:33Z 2011-07-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110726094406 http://hdl.handle.net/10986/3499 English Policy Research working paper ; no. WPS 5737 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCESS TO HIGHER EDUCATION AMOUNT OF DEBT AMOUNT OF RISK ASSET PRICES ASSET PRICING ASSETS ASYMMETRIC INFORMATION BANKRUPTCY BANKRUPTCY LAWS BORROWER BORROWING CAPITAL INVESTMENT CAPITAL RETURNS CAREER CAREER CHOICE COLLATERAL COST-SHARING CREDIT CONSTRAINTS CREDIT INSTRUMENT DEBT DEBT BURDEN DEBT CONTRACT DEMOGRAPHIC CHARACTERISTICS DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT POLICY EARNINGS ECONOMIC RESEARCH ECONOMICS LITERATURE EDUCATION COSTS EDUCATIONAL FINANCE EMPLOYMENT EQUITY INVESTMENTS FINANCIAL AID FINANCIAL CONTRACT FINANCIAL INSTITUTION FINANCIAL INSTRUMENT FINANCIAL TRANSACTION FLEXIBLE LOAN FUTURE RESEARCH GENDER HIGH SCHOOL GRADUATES HIGHER EDUCATION HIGHER EDUCATION FINANCING HUMAN CAPITAL HUMAN CAPITAL INVESTMENT HUMAN DEVELOPMENT IMPACT OF DEBT INCOME INCOME CONTINGENT LOANS INCOME LEVEL INCOME LEVELS INCOME-CONTINGENT INCOMPLETE MARKETS INFORMATION ASYMMETRY INTERNATIONAL BANK INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES INVESTMENTS IN EDUCATION LEGAL BARRIERS LEVELS OF EDUCATION LOAN CONTRACT LOANS TO STUDENTS LOCAL CURRENCIES LOCAL CURRENCY LOTTERY LOW-INCOME STUDENTS MONETARY VALUE OPEN ACCESS PAPERS PAYOFFS PORTFOLIO PORTFOLIO CHOICE POTENTIAL BORROWERS POTENTIAL INVESTORS PUBLIC EDUCATION PUBLIC FINANCE RETURN RISK-AVERSE INDIVIDUALS SHAREHOLDER STUDENT LOAN STUDENT LOANS TANGIBLE ASSET TITLE TRANSACTION TRANSFER RISK TYPES OF DEBT UNIVERSITIES VALUE OF DEBT WAGES |
| spellingShingle |
ACCESS TO HIGHER EDUCATION AMOUNT OF DEBT AMOUNT OF RISK ASSET PRICES ASSET PRICING ASSETS ASYMMETRIC INFORMATION BANKRUPTCY BANKRUPTCY LAWS BORROWER BORROWING CAPITAL INVESTMENT CAPITAL RETURNS CAREER CAREER CHOICE COLLATERAL COST-SHARING CREDIT CONSTRAINTS CREDIT INSTRUMENT DEBT DEBT BURDEN DEBT CONTRACT DEMOGRAPHIC CHARACTERISTICS DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT POLICY EARNINGS ECONOMIC RESEARCH ECONOMICS LITERATURE EDUCATION COSTS EDUCATIONAL FINANCE EMPLOYMENT EQUITY INVESTMENTS FINANCIAL AID FINANCIAL CONTRACT FINANCIAL INSTITUTION FINANCIAL INSTRUMENT FINANCIAL TRANSACTION FLEXIBLE LOAN FUTURE RESEARCH GENDER HIGH SCHOOL GRADUATES HIGHER EDUCATION HIGHER EDUCATION FINANCING HUMAN CAPITAL HUMAN CAPITAL INVESTMENT HUMAN DEVELOPMENT IMPACT OF DEBT INCOME INCOME CONTINGENT LOANS INCOME LEVEL INCOME LEVELS INCOME-CONTINGENT INCOMPLETE MARKETS INFORMATION ASYMMETRY INTERNATIONAL BANK INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES INVESTMENTS IN EDUCATION LEGAL BARRIERS LEVELS OF EDUCATION LOAN CONTRACT LOANS TO STUDENTS LOCAL CURRENCIES LOCAL CURRENCY LOTTERY LOW-INCOME STUDENTS MONETARY VALUE OPEN ACCESS PAPERS PAYOFFS PORTFOLIO PORTFOLIO CHOICE POTENTIAL BORROWERS POTENTIAL INVESTORS PUBLIC EDUCATION PUBLIC FINANCE RETURN RISK-AVERSE INDIVIDUALS SHAREHOLDER STUDENT LOAN STUDENT LOANS TANGIBLE ASSET TITLE TRANSACTION TRANSFER RISK TYPES OF DEBT UNIVERSITIES VALUE OF DEBT WAGES Caetano, Gregorio Patrinos, Harry A. Palacios, Miguel Measuring Aversion to Debt : An Experiment among Student Loan Candidates |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5737 |
| description |
This paper reports the results of an
experiment designed to test for the presence of debt
aversion. The population who participated in the experiment
were recent financial aid candidates and the experiment
focused on student loans. The goal is to shed new light on
different aspects of the perceptions with respect to debt.
These perceptions can prevent agents from choosing an
optimal portfolio or from undertaking attractive investment
opportunities, such as in education. The study design
disentangles two types of debt aversion: one that is studied
in the previous literature, which encompasses both framing
and labeling effects, and another that controls for framing
effects and identifies only what we denote labeling debt
aversion. The results suggest that participants in the
experiment exhibit debt aversion, and most of the debt
aversion is due to labeling effects. Labeling a contract as
a "loan"' decreases its probability of being
chosen over a financially equivalent contract by more than 8
percent. The analysis also provides evidence that students
are willing to pay a premium of about 4 percent of the
financed value to avoid a contract labeled as debt. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Caetano, Gregorio Patrinos, Harry A. Palacios, Miguel |
| author_facet |
Caetano, Gregorio Patrinos, Harry A. Palacios, Miguel |
| author_sort |
Caetano, Gregorio |
| title |
Measuring Aversion to Debt : An Experiment among Student Loan Candidates |
| title_short |
Measuring Aversion to Debt : An Experiment among Student Loan Candidates |
| title_full |
Measuring Aversion to Debt : An Experiment among Student Loan Candidates |
| title_fullStr |
Measuring Aversion to Debt : An Experiment among Student Loan Candidates |
| title_full_unstemmed |
Measuring Aversion to Debt : An Experiment among Student Loan Candidates |
| title_sort |
measuring aversion to debt : an experiment among student loan candidates |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110726094406 http://hdl.handle.net/10986/3499 |
| _version_ |
1764387099617787904 |