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financial decision making, debt repayment, debt consolidation, goals, credit cards


Moty amar, dan ariely, shahar ayal, cynthia e.cryder, and scott I. Rick




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 comlicated tasks into more manageable parts, and
because losses are most distressing when segregated, the authors hypothesize
that people will pay off the samllest 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 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.


Vol 48, Nomor SPE, Tahun 2011


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