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Experimental Economics

, Volume 19, Issue 2, pp 281–298 | Cite as

Intertemporal consumption and debt aversion: an experimental study

  • Thomas MeissnerEmail author
Original Paper

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 experiment Intertemporal consumption Consumption smoothing Debt aversion 

JEL Classification

C91 D91 E21 

Notes

Acknowledgments

I am grateful for valuable comments by Frank Heinemann, Dorothea Kübler, Dietmar Fehr and participants of the Berlin Behavioral Economics Colloquium and the Barcelona GSE Summer Forum Workshop on Theoretical and Experimental Macroeconomics. I also thank Satpal Nijjar for help with programming the experimental software. Financial support from the Deutsche Forschungsgemeinschaft (DFG) through CRC 649 “Economic Risk” is gratefully acknowledged.

Supplementary material

10683_2015_9437_MOESM1_ESM.pdf (197 kb)
Supplementary material 1 (PDF 198 KB)

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Copyright information

© Economic Science Association 2015

Authors and Affiliations

  1. 1.Berlin University of TechnologyBerlinGermany
  2. 2.Grenoble Ecole de ManagementGrenobleFrance

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