Overconfidence in the Credit Card Market

Maringer, Dietmar and Kriete-Dodds, Susan. (2015) Overconfidence in the Credit Card Market. In: Analyzing the Economics of Financial Market Infrastructures. Hershey, PA, USA, pp. 150-168.

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Official URL: http://edoc.unibas.ch/39493/

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High credit card debt default has been symptomatic for the U.S. and other countries in the last decades. Different explanations for this situation exist in the literature. One explanation is overconfidence, which has become a key concept in behavioural economics for explaining anomalies in financial markets such excessive trading volume. There is also the idea that overconfidence is to blame for high credit card debt. In this paper, an agent-based model is presented that examines the effects of overconfidence on credit card usage. Overconfidence is used here to explain why people who never intend to borrow on their credit card(s) do so anyway.The model contains consumption, two means of payment (credit card and cash), and a distortion to agents' income expectations via overconfidence. It was found that overconfidence leads to more “accidental” borrowing and higher interest rates.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Computational Economics and Finance (Maringer)
UniBasel Contributors:Maringer, Dietmar and Kriete-Dodds, Susan
Item Type:Book Section, refereed
Book Section Subtype:Book Chapter
Publisher:IGI Global
Note:Publication type according to Uni Basel Research Database: Book item
Last Modified:30 Jun 2016 10:59
Deposited On:06 Jun 2016 08:54

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