Mortgage choice as a natural field experiment on choice under risk

Bacon, Philomena M. and Moffatt, Peter G. (2012) Mortgage choice as a natural field experiment on choice under risk. Journal of Money, Credit and Banking, 44 (7). pp. 1401-1426. ISSN 0022-2879

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Data on approximately 280,000 borrowers from the UK Survey of Mortgage Lenders are used to model choices between variable and fixed rate mortgages. The choice is assumed to depend on three factors: risk attitude, interest-rate expectations, and individual discount rate. The ordered probit model is used for estimation, while taking account of a number of econometric issues including missing counterfactuals, selectivity, and endogeneity. A large number of strong effects are found, including: higher income borrowers are less risk averse and have a lower discount rate, and risk aversion rises with the amount borrowed, providing evidence of increasing relative risk aversion.

Item Type: Article
Uncontrolled Keywords: g20,m13,risky choice,fixed and variable rate,counterfactuals,interest rate expectations,discounting,ordered probit,term structure
Faculty \ School: Faculty of Social Sciences > School of Economics
UEA Research Groups: Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences
Faculty of Social Sciences > Research Groups > Applied Econometrics And Finance
Faculty of Social Sciences > Research Groups > Behavioural Economics
Depositing User: Pure Connector
Date Deposited: 18 Dec 2013 10:40
Last Modified: 27 Oct 2023 01:13
DOI: 10.1111/j.1538-4616.2012.00537.x

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