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- Title
Hidden Costs of Hidden Debt*.
- Authors
Almenberg, Johan; Karapetyan, Artashes
- Abstract
We argue that salience—the extent to which a cost is visible and difficult to ignore—may have economically significant effects on homeowners’ borrowing behavior, through a bias toward less salient but more expensive loans. We first use a simple model to show that the presence of some biased consumers in the market will affect equilibrium prices. Next, we show that market data support the predictions of the model. We conduct several robustness checks to address unobserved heterogeneity. The observed effect is large. We finally report a survey evidence consistent with this bias.
- Publication
Review of Finance, 2014, Vol 18, Issue 6, p2247
- ISSN
1572-3097
- Publication type
Article
- DOI
10.1093/rof/rft053