Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222097
Authors: 
Klühs, Theres
Koch, Melanie
Stein, Wiebke
Year of Publication: 
2019
Series/Report no.: 
Discussion Paper No. 200
Abstract: 
Household indebtedness is rising worldwide. This study investigates one possible driver of this increase that is rooted in the theory of permanent income: high income expectations. We collect data from an emerging country, Thailand, as (over-) indebtedness in markets with incomplete financial infrastructure and social security can be devastating. Furthermore, our sample of rural households is exposed to a high degree of uncertainty, which makes expectation formation prone to behavioral biases. We implement a new measure for high income expectations and show that it is strongly and robustly related to both objective and subjectively felt over-indebtedness. Controlling for various household characteristics, unexpected shocks, and other possible confounding factors reduces the concern about reverse causality. In an additional lab-in-the-field experiment, we explicitly find that overconfidence, a specific form of biased expectation, is related to overborrowing.
Subjects: 
Household debt
Lab-in-the-field experiment
Emerging markets
JEL: 
D14
D84
D91
Document Type: 
Working Paper

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