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From desire to despair: Scarcity mindset and young adults’ borrowing to purchases of consumer products

Konferensbidrag (offentliggjort, men ej förlagsutgivet)
Författare Tommy Gärling
Patrik Michaelsen
Publicerad i SABE/IAREP Conference: Behavioural insights in research and policy making. Wageningen University, 8-10 July 2016
Publiceringsår 2016
Publicerad vid Psykologiska institutionen
Centrum för finans
Institutionen för nationalekonomi med statistik
Språk en
Länkar https://www.wur.nl/upload_mm/1/8/3/...
Ämnesord Consumer decision making, psychology of borrowing, scarcity mindset
Ämneskategorier Tillämpad psykologi, Nationalekonomi

Sammanfattning

In order to understand young adults ́ borrowing to consumption, we present a new approach which posits that a scarcity mindset is induced by consumers' desires to purchase conspicuous consumer products exceeding their ability for paying i n cash. An induced scarcity mindset is hypothesized to lead to a present bias such that choice of credit payments overrides a negative attitude towards credit as well as to a focus effect reducing the role of financial knowledge. In order to test these imp lications, we conducted an experiment employing 64 university students (84.4% women; mean age 25.95 years, standard deviation = 6.33 years) who in an internet questionnaire were asked to imagine that they desired to purchase a new smartphone of a premium brand. They choose to pay by one of six different installment plans varying in repayment length (10 to 30 months), monthly payment (from USD 48 to USD 89), and total product cost (from +5% to +25%). We measured attitude towards use of credit card, store ins tallment plan, payday loan, and secured bank loan for purchases of non -essential consumer products in the same price range as premium -brand smartphones. Ratings of each credit type were obtained on scales of positive versus negative, reasonable versus unre asonable, acceptable versus unacceptable, and practical versus impractical. For an aggregated index we obtained a Cronbach’s alpha of .72. A multi -item measure of self - reported interest in and knowledge of household economy was also obtained and aggregated (Cronbach’s alpha = .80). The results showed that choice of a longer installment plan (lower monthly payment, higher total cost) correlated positively with a positive attitude towards credit (r = .24, p = .056; r = .314, p = .011. for attitude towards sto re installment plan) and negatively with interest in and knowledge of household economy (r = - .22, p = .088). Other variables correlated more weakly in the expected direction with choice of installment plan , including strength of desire to purchase a new smartphone (r = .13) and disposal income (r = - .07). In order to experimentally induce the scarcity mind set, participants were randomly assigned to two conditions in which they were asked to either imagine having a debt of SEK 400 (USD 47) or SEK 1400 (US D 165) due to be paid the same month as the first repayment of the smartphone. Pilot data and manipulation checks showed that paying the larger debt was economically strenuous while paying the smaller debt was not. In a multiple linear regression analysis on choice of number of months of repayment, attitude towards credit and financial knowledge were close to significant (Beta = .22, p = .083; Beta = - .19, p = .132). In another regression analysis, condition was close to significant (Beta = .23, p = .066) but no longer attitude towards credit (Beta = .17, p = .185), whereas financial knowledge was not changed (Beta = - .22, p = .081). Average chosen installment plan length was 19.70 months for the large debt and 16.19 months for the small debt. In summary, th e results partially supported the conclusion that inducing a scarcity mindset results in a present bias in that a longer installment plan is chosen such that the cost of the product is higher. As expected, the influence of the negative attitude towards credit then becomes weaker. Yet, the influence of financial knowledge remains. Desire strength was weakly in the expected direction. This is possibly due to that some participants did not desire a new smartphone but were asked to imagine they did. Disposable income had no effect probably because in the student sample the variation is low.

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