The hidden costs of hidden debt
- Johan Almenberg and Artashes Karapetyan
- Working Paper
We report evidence that salience may have economically significant effects on homeowners’ borrowing behavior, through a bias in favour of less salient but more costly loans. Survey evidence corroborates the existence of such a bias. We outline a simple model in which some consumers are biased and show that under plausible assumptions this affects prices in equilibrium. Market data support the predictions of the model.
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ISSN 1502-8143 (online)