Positive illusions and the temptation to borrow
() and Halvor Mehlum
Abstract: We provide an explanation of the low willingness to save
that is observed in many poor countries. Our explanation is based on the
hypothesis that People have an over-optimistic outlook. As discussed in the
psychological literature,an illusionary positive view of the future may be
a good thing. However, we show that it can lead individuals to accumulate
unsustainable levels of debt.Using survey data from South Africa, we
confirm that poor people are indeed overly optimistic, and also that
optimism is positively and significantly related to debt accumulation.
Keywords: poverty; savings; discounting; debt; (follow links to similar papers)
JEL-Codes: D14; D30; O10; O12; (follow links to similar papers)
23 pages, July 5, 2017
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