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The Hedonics of Debt.
Faith Shin1, Dov Cohen1, Robert M Lawless2
1Department of Psychology, University of Illinois at Urbana-Champaign, Champaign, IL, United States.
Frontiers in Psychology
|December 7, 2020
Summary
Consumers focus on monthly loan payments, showing duration neglect and over-weighting final moments. Surprisingly, extending loan duration with smaller payments can increase willingness to buy, despite higher overall costs.
Area of Science:
- Behavioral Economics
- Consumer Psychology
- Decision Science
Background:
- The concept of
Purpose of the Study:
- To investigate how consumers evaluate prospective debt payments.
- To analyze the impact of loan features on willingness to accept loans.
Main Methods:
- Four experiments were conducted.
- Participants evaluated prospective debt payments with varying loan features.
- Willingness to accept loans was measured.
Main Results:
- Participants exhibited duration neglect, over-weighting final payment moments.
- Monthly or average payment size heavily influenced loan acceptance.
- Extending loan duration by 40% did not significantly decrease willingness to accept.
- Increasing loan length and cost with smaller end payments increased willingness to buy.
Conclusions:
- Consumer evaluation of debt is influenced by payment structure, not just total cost or duration.
- Duration neglect and focus on monthly payments are key factors in loan acceptance.
- Strategic structuring of loan payments can enhance consumer purchasing decisions.
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