Eric Johnson

Time Preferences, Mortgage Choice, and Strategic  Default

Coauthor(s): Stephen Atlas, John W. Payne.

Abstract:

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.

Close Window