Job Market Paper
Sticking to your Plan: Hyperbolic Discounting and Credit Card Debt Paydown (Job Market Paper)
I use detailed data from an online credit management service to analyze the extent to which short-run impatience can explain why people hold expensive credit card balances. I first measure the sensitivity of consumption spending to payment receipt for each user and argue that it provides a proxy for short-run impatience. To distinguish between consumers who are aware (sophisticated) and unaware (naive) of their future impatience, I exploit that the sensitivity to paycheck receipt should vary with available resources for sophisticated agents. I then relate these characteristics of each person's consumption pattern to their planned and actual debt repayment behavior. Consistent with theory, planned paydown is significantly more predictive of actual paydown for sophisticated than for naive agents. In addition, higher measured impatience leads to lower debt paydown for sophisticated agents, whereas naive agents do not reduce their credit card balances substantially, irrespective of their level of impatience. These findings are inconsistent with several alternative explanations considered, such as credit constraints, and support the view that short-run impatience and sophistication play a substantial role in explaining patterns of success and failure in debt paydown.
Other Research Papers
Learning from Seller Experiments in Online Markets (With Liran Einav, Jonathan Levin and Neel Sundaresan)
The internet has dramatically
reduced the cost of varying prices, displays and information provided to
consumers, facilitating both active and passive experimentation. We document
the prevalence of targeted pricing and auction design variation on eBay, and
identify hundreds of thousands of experiments conducted by sellers across a
wide array of retail products. We use the data to measure the dispersion in
auction prices for identical goods sold by the same seller, to estimate
nonparametric auction demand curves, to analyze the effect of
"buy it now" options and other auction
design parameters, and to assess consumer sensitivity to shipping fees. We
also investigate the robustness of the results by isolating different types
of identifying variation, as well as the heterogeneity of the estimates
across item categories. We argue that leveraging the experiments of market
participants takes advantage of the scale and heterogeneity of online
markets and can be a powerful approach for testing and measurement.
Overoptimistic Managers and Market Misvaluation: Implications for Method of Payment and Subsequent Returns of Corporate Acquisitions
I empirically analyze the effect of potential market misvaluation for corporate acquisitions when managers can be overoptimistic. Market misvaluation leads to differences in the preferred method of payment and the subsequent returns to acquisitions by overoptimistic and rational managers. Using the option exercise behavior of top executives to measure overoptimism, I show that CEOs classified as overoptimistic are more likely to pay for an acquisition with cash when market-wide valuations are above their long-term trend. This effect is most pronounced in moderately high market settings.
When paying with cash, overoptimistic CEOs are not constrained by the perceived cost of stock financing. Cash acquistions by overoptimistic CEOs are therefore especially prone to underperform in the long-run. The estimated effect is strongest at times of high market valuation when using cash is disadvantageous and avoided by rational CEOs, but still favored by overoptimistic CEOs.
Foreclosure and Bankruptcy - Policy Conclusions from the Current Crisis (With Johannes Stroebel)
The recent episode of rising consumer bankruptcies and increasing foreclosure rates has sparked a lively debate about how to best tackle the crisis in the U.S. housing market. We contribute to this debate by providing an explicit model of a household’s joint decision to declare Chapter 7 bankruptcy and to enter into foreclosure. This model demonstrates how bankruptcy exemption limits and mortgage regulation interact to influence consumer bankruptcy and foreclosure rates. We use state-level data to show that our model predictions are empirically plausible. We suggest that policy proposals need to focus on reducing both foreclosures and bankruptcies jointly. In particular, we argue that in the short-run a switch from non-recourse mortgages to recourse mortgages may have little effect on the number of foreclosures, but could dramatically increase the number of bankruptcies.
Work in Progress
Seller Learning in Online Markets (with Liran Einav, Jonathan Levin and Neel Sundaresan)
Why Reviews Matter - Consumer Taste Signals in Online Markets