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In this paper, 'How Do Individuals Repay Their Debt? The Balance-Matching Heuristic', which was recently published in the American Economic Review (Vol. 109, No. 3, March 2019 pp. 844-75), the authors study how individuals repay their debt using linked data on multiple credit cards.  Repayments are not allocated to the higher interest rate card, which would minimize the cost of borrowing. Moreover, the degree of misallocation is invariant to the economic stakes, which is inconsistent with optimization frictions. Instead, they show that repayments are consistent with a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. Balance matching captures more than half of the predictable variation in repayments and is highly persistent within individuals over time.

Authors: John Gathergood (University of Nottingham School of Economics), Neale Mahoney (University of Chicago Booth School of Business), Neil Stewart (Warwick Business School) and Jörg Weber (University of Nottingham School of Economics).

There have been a number of media articles associated with this paper (which was also published as a NBER Working Paper No 24161 issued in December 2017).  This includes:

 This research has also been presented at:

  • Verein für Socialpolitik (German Economic Society) Annual Conference,  Freiburg (Joerg Weber, September 2018)
  • Lancaster University Business School, Department of Economics Lancaster (Joerg Weber, December 2018) 
  • LISER  Luxembourg Speaker (Joerg Weber, December 2018)

In February 2020 an animation was created showing the key findings of this paper, you can view it on YouTube

Posted on Thursday 28th March 2019

NIBS - Network for Integrated Behavioural Science

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