"Time Preferences, Mortgage Choice, and Strategic Default"
Publication type: Working paper
Research Archive Topic: Marketing
Using data from a survey with 244 mortgaged households, we measure two components of individual time preferences, both a present bias, a tendency to overvalue immediate outcomes, and an exponential discount rate for outcomes beyond the present. Underwater homeowners exhibit both a greater present bias and a greater discount rate. In contrast, while higher exponential discounting increases the likelihood that the consumer will abandon a house, greater present bias decreases the chances that they will walk away from a mortgage. Time preferences remain robust predictors in the presence of alternative covariates. We close by discussing, more generally, the role of time preferences in other consumer financial decisions.
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