TITLE

Winning the Battle but Losing the War: The Psychology of Debt Management

AUTHOR(S)
Amar, Moty; Ariely, Dan; Ayal, Shahar; Cryder, Cynthia E; Rick, Scott I
PUB. DATE
October 2011
SOURCE
Journal of Marketing Research (JMR);Oct2011 Supplement 1, Vol. 48, pS38
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
When consumers carry multiple debts, how do they decide which debt to repay first?? Normatively, consumers should repay the debt with the highest interest rate most quickly. However, because people tend to break complicated tasks into more manageable parts, and because losses are most distressing when segregated, the authors hypothesize that people will pay off the smallest loan first to reduce the total number of outstanding loans and achieve a sense of tangible progress toward debt repayment. To experimentally examine how consumers manage multiple debts, the authors develop an incentive-compatible debt management game, in which participants are saddled with multiple debts and need to decide how to repay them over time. Consistent with the hypothesis, four experiments reveal evidence of debt account aversion: Participants consistently pay off small debts first, even though the larger debts have higher interest rates. The authors also find that restricting participants' ability to completely pay off small debts, and focusing their attention on the amount of interest each debt has accumulated, helps them reduce overall debt more quickly.
ACCESSION #
66638379

 

Related Articles

  • Minimum Required Payment and Supplemental Information Disclosure Effects on Consumer Debt Repayment Decisions. Navarro-Martinez, Daniel; Salisbury, Linda Court; Lemon, Katherine N; Stewart, Neil; Matthews, William J; Harris, Adam J.L // Journal of Marketing Research (JMR);Oct2011 Supplement 1, Vol. 48, pS60 

    Repayment decisions-how much of the loan to repay and when to make the payments-directly influence consumer debt levels. The authors examine how minimum required payment policy and loan information disclosed to consumers influence repayment decisions. They find that while presenting minimum...

  • Introduction to the Journal of Marketing Research Special Interdisciplinary Issue on Consumer Financial Decision Making. Lynch, John G // Journal of Marketing Research (JMR);Oct2011 Supplement 1, Vol. 48, pSiv 

    An introduction is presented to the articles published in this issue on consumer financial planning decision making including an article on the effect of compound interest on savings, an article on consumer management of debt and credit and an article on psychological aspects of investment.

  • The Impact of Temporal Orientation on Higher Order Choices: A Phenomenological Investigation. Walsh, Patricia Ann // Advances in Consumer Research;1995, Vol. 22 Issue 1, p311 

    I examine the influence of temporal orientation-the future-present dichotomy-on the higher order choices (spending-saving decisions) of five informants. Analysis of interview data reveals each informant's temporal orientation remains constant across the separate types of higher order choices....

  • Balancing Giving-Up Vs. Taking-In: Does the Pattern of Payments and Benefits Matter to Customers in a Financing Decision Context? Seigyoung Auh; Chuan-Fong Shih // Advances in Consumer Research;2006, Vol. 33 Issue 1, p139 

    Despite the relevance of mental accounting as a framework in addressing consumer behavior decision making, very little has been documented about the applicability of mental accounting to financial marketing and behavioral financing. This paper attempts to build and extend the literature on...

  • Leave Home Without It?? The Effects of Credit Card Debt and Available Credit on Spending. Wilcox, Keith; Block, Lauren G; Eisenstein, Eric M // Journal of Marketing Research (JMR);Oct2011 Supplement 1, Vol. 48, pS78 

    This research examines how credit card debt affects consumer spending. In five experimental and field studies, the authors demonstrate that outstanding credit card debt increases spending for consumers with high self-control. They also show that this effect can be eliminated by increasing the...

  • It's All Green to Me: How Intrapersonal and Interpersonal Factors Shape Consumers' Financial Decisions. Mittal, Chiraag; Olson, Jenny G. // Advances in Consumer Research;2014, Vol. 42, p184 

    The article discusses several studies presented at a special session of the 2014 Association for Consumer Research (ACR) Conference, titled "It's All Green to Me: How Intrapersonal and Interpersonal Factors Shape Consumers' Financial Decisions." Topics covered include the psychological...

  • MINIMUM PAYMENT WARNINGS AND INFORMATION DISCLOSURE EFFECTS ON CONSUMER DEBT REPAYMENT DECISIONS. Salisbury, Linda Court // AMA Marketing & Public Policy Academic Conference Proceedings;2012, Vol. 22, p155 

    The article discusses a study which examined the effects of minimum payment warnings and information disclosure on consumer debt repayment decisions. The experimental study involved 462 adult U.S. consumers, which were shown a hypothetical credit card bill. It was found that highlighting an...

  • Behavioral Decision Research: Theory and Applications. Dhar, Ravi // Advances in Consumer Research;1993, Vol. 20 Issue 1, p195 

    An introduction is presented to articles within the issue that deal with behavioral decision research as it applies to marketing including an extended paradigm of consumer satisfaction, consumer choice making using contingent weighting framework, and motivation based mechanisms.

  • Children as Decision Makers. Corfman, Kim // Advances in Consumer Research;1997, Vol. 24 Issue 1, p125 

    The article presents information on a meeting at the 1996 conference of the Association for Consumer Research (ACR) on children as consumers and as decision makers. Summaries are offered of papers presented at the meeting on age differences in children's decision making, on teenager and parent...

Share

Read the Article

Courtesy of THE LIBRARY OF VIRGINIA

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics