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Intertemporal consumption and debt aversion: an experimental study

Published online by Cambridge University Press:  14 March 2025

Thomas Meissner
Thomas Meissner*
Affiliation:
Berlin University of Technology, Strasse des 17. Juni 135, 10623 Berlin, Germany Grenoble Ecole de Management, 12 Rue Pierre Semard, 38000 Grenoble, France
*
meissnet@gmail.com
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Abstract

This paper tests how subjects behave in an intertemporal consumption/saving experiment when borrowing is allowed and whether subjects treat debt differently than savings. Two treatments create environments where either saving or borrowing is required for optimal consumption. Since both treatments share the same optimal consumption levels, observed consumption choices can be directly compared across treatments. The experimental findings imply that deviations from optimal behavior are higher when subjects have to borrow than when they have to save in order to consume optimally, suggesting debt aversion. Signifiant under-consumption is observed when subjects have to borrow in order to reach optimal consumption. In line with previous experiments, weak evidence is found suggesting that subjects over-consume when saving is necessary for optimal consumption.

Keywords

Laboratory experimentIntertemporal consumptionConsumption smoothingDebt aversion

JEL classification

E21: Consumption • Saving • Wealth C91: Laboratory, Individual Behavior D91: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Type
Original Paper
Information
Experimental Economics , Volume 19 , Issue 2 , June 2016 , pp. 281 - 298
Copyright
Copyright © 2015 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (doi:https://doi.org/10.1007/s10683-015-9437-0) contains supplementary material, which is available to authorized users.

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