Featured Research

from universities, journals, and other organizations

Impatient people have lower credit scores, study finds

Date:
December 2, 2011
Source:
Association for Psychological Science
Summary:
Is there a psychological reason why people default on their mortgages? A new study finds that people with bad credit scores are more impatient -- more likely to choose immediate rewards rather than wait for a larger reward later.

Is there a psychological reason why people default on their mortgages? A new study, which will be published in an upcoming issue of Psychological Science, a journal of the Association for Psychological Science, finds that people with bad credit scores are more impatient -- more likely to choose immediate rewards rather than wait for a larger reward later.

Related Articles


The new paper is by two economists who were working at the Federal Reserve's Center for Behavioral Economics and Decisionmaking in Boston at the time they did the research. People at the Fed are very interested in understanding how the default crisis came about. "Most often, the reasons economists put forward are, maybe there was not enough screening for mortgage applicants, or securitization, or other institutional reasons," says Stephan Meier, who is now at Columbia University. His coauthor, Charles Sprenger, is at Stanford University. "That's definitely important, but in the end humans make those repayment decisions. So there must be more psychological factors that explain how people make those decisions to default or not?"

During tax season, Meier and Sprenger recruited 437 low-to-moderate income people at a community center in Boston that was offering tax preparation help. Each person was given a questionnaire in which they made choices between a smaller, immediate reward and a larger reward later. This is a common test for seeing if people are willing to delay gratification. The questions offer different time periods and different amounts. The participants also agreed to let the researchers access their credit scores.

Impatient people had lower credit scores. A low credit score can indicate some problems with credit in the past, like failing to pay bills or defaulting on a mortgage. "Conceptually, it does make sense that how people discount the future, i.e. how impatient they are, affects their decision to default on their loans," Meier says. "Individuals accumulate debt and then have to decide whether to repay the money or use the money for something else?" If they don't pay off their debt, they will have short-term benefits -- any cash on hand is available for something else -- but the costs/problems come much later, when a landlord, mortgage lender, or someone else sees their bad credit report.

Meier acknowledges that defaulting on a loan isn't always a deliberate choice. People may default because they lose their job, for example. "But there is a little bit of strategic defaulting going on, where some people make this cost-benefit analysis" -- those individuals rather have more money now and deal with the repercussions later.


Story Source:

The above story is based on materials provided by Association for Psychological Science. Note: Materials may be edited for content and length.


Cite This Page:

Association for Psychological Science. "Impatient people have lower credit scores, study finds." ScienceDaily. ScienceDaily, 2 December 2011. <www.sciencedaily.com/releases/2011/12/111202155803.htm>.
Association for Psychological Science. (2011, December 2). Impatient people have lower credit scores, study finds. ScienceDaily. Retrieved December 22, 2014 from www.sciencedaily.com/releases/2011/12/111202155803.htm
Association for Psychological Science. "Impatient people have lower credit scores, study finds." ScienceDaily. www.sciencedaily.com/releases/2011/12/111202155803.htm (accessed December 22, 2014).

Share This


More From ScienceDaily



More Mind & Brain News

Monday, December 22, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Researchers Test Colombian Village With High Alzheimer's Rates

Researchers Test Colombian Village With High Alzheimer's Rates

AFP (Dec. 19, 2014) In Yarumal, a village in N. Colombia, Alzheimer's has ravaged a disproportionately large number of families. A genetic "curse" that may pave the way for research on how to treat the disease that claims a new victim every four seconds. Duration: 02:42 Video provided by AFP
Powered by NewsLook.com
Double-Amputee Becomes First To Move Two Prosthetic Arms With His Mind

Double-Amputee Becomes First To Move Two Prosthetic Arms With His Mind

Buzz60 (Dec. 19, 2014) A double-amputee makes history by becoming the first person to wear and operate two prosthetic arms using only his mind. Jen Markham has the story. Video provided by Buzz60
Powered by NewsLook.com
Prenatal Exposure To Pollution Might Increase Autism Risk

Prenatal Exposure To Pollution Might Increase Autism Risk

Newsy (Dec. 18, 2014) Harvard researchers found children whose mothers were exposed to high pollution levels in the third trimester were twice as likely to develop autism. Video provided by Newsy
Powered by NewsLook.com
Yoga Could Be As Beneficial For The Heart As Walking, Biking

Yoga Could Be As Beneficial For The Heart As Walking, Biking

Newsy (Dec. 17, 2014) Yoga can help your weight, blood pressure, cholesterol and heart just as much as biking and walking does, a new study suggests. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Health & Medicine

Mind & Brain

Living & Well

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins