Risk preference, payday loans and other alternative financial services

IF 1.9 Q2 BUSINESS, FINANCE Review of Behavioral Finance Pub Date : 2023-11-17 DOI:10.1108/rbf-04-2023-0099
Song Wang
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Abstract

Purpose

The purpose of this paper is to examine how individual risk preference influences the borrowing of payday loans – a prevalent type of cash loan in the USA with exorbitantly high-interest rates. Additionally, this paper tests how risk preference determines other alternative financial services (AFS), including pawn shops, rent-to-own purchases, title loans, etc.

Design/methodology/approach

The author applies Probit and Tobit regressions to test the relationship between individual risk preference and payday borrowing, based on the state-by-state survey data from National Financial Capability Study (NFCS) sponsored by Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.

Findings

Individuals with higher risk tolerance are more likely to borrow payday loans and other AFS, after controlling for financial situation, financial literacy, overconfidence and demographic features.

Originality/value

This paper is the first to study risk preference as an explanation to the high cost and widely used payday loan services in the United States of America. This study provides evidence that these cash loans are determined by inherent human characteristics. The finding provides new insight for the policymakers and regulators in the consumer debt market.

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风险偏好,发薪日贷款和其他替代金融服务
本文的目的是研究个人风险偏好如何影响发薪日贷款的借贷-一种在美国普遍存在的现金贷款类型,利率过高。此外,本文还测试了风险偏好如何决定其他替代金融服务(AFS),包括典当行、以租换拥有的购买、产权贷款等。设计/方法/方法作者应用Probit和Tobit回归来测试个人风险偏好与发薪日借款之间的关系。基于由金融业监管局(FINRA)投资者教育基金会赞助的国家金融能力研究(NFCS)的各州调查数据。研究发现,在控制了财务状况、金融知识、过度自信和人口特征之后,风险承受能力较高的个人更有可能借入发薪日贷款和其他AFS。原创性/价值本文首次研究了风险偏好对美国高成本和广泛使用的发薪日贷款服务的解释。这项研究提供的证据表明,这些现金贷款是由人类固有的特征决定的。这一发现为消费者债务市场的政策制定者和监管者提供了新的视角。
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来源期刊
Review of Behavioral Finance
Review of Behavioral Finance BUSINESS, FINANCE-
CiteScore
4.70
自引率
5.00%
发文量
44
期刊介绍: Review of Behavioral Finance publishes high quality original peer-reviewed articles in the area of behavioural finance. The RBF focus is on Behavioural Finance but with a very broad lens looking at how the behavioural attributes of the decision makers influence the financial structure of a company, investors’ portfolios, and the functioning of financial markets. High quality empirical, experimental and/or theoretical research articles as well as well executed literature review articles are considered for publication in the journal.
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