The research team implemented a survey evaluation to measure payday borrowers’ self-control for making rational long-term financial decisions and their self-awareness about their own self-control. The survey ran at 41 of the lender’s stores in Indiana from and had over 1,200 respondents included in data analysis.
Immediately before or after taking out a payday loan, borrowers participating in the study took a survey questionnaire offering choices between three rewards they would potentially receive twelve weeks later:
After the survey was complete, the iPad informed participants of whether they had been selected for one of types of rewards or received nothing (the comparison group). The probabilities of receiving the debt-free incentive, one randomly chosen value of their Money for Sure responses, or nothing were 44 https://paydayloansohio.net/cities/marion/ percent, 2 percent, and 54 percent, respectively. Participants also received a reminder of the reward via email four weeks after the survey.
The evaluation revealed that the average borrower almost fully anticipates repeat borrowing. Among the people who did not receive any rewards (the comparison group), 70 percent said they would borrow again. When comparing with administrative data, 74 percent of the people did borrow, confirming that on average people can anticipate their likelihood of repeat borrowing.
However, researchers found this is not true among the most inexperienced borrowers, those who had taken out three or fewer loans from the lender in the six months prior to the intervention. On average, these borrowers underestimate their future borrowing probability by 20 percentage points.
People who received the incentive were less likely to predict correctly their probability of taking out a payday loan in the future. The average borrower predicted that the US$100 debt-free incentive would reduce the probability of taking out another loan within the next eight weeks to 50 percent. In reality, however, those offered the debt-free incentive took out another loan 70 percent of the time. This suggests that experience under normal conditions can help borrowers predict their behavior under normal conditions, but it does not help them predict their behavior under unfamiliar conditions.
On average, borrowers value the no-borrowing incentive 30 percent more than they would if had perfect self-control or if they are risk-neutral, suggesting people are present-focused and aware of this bias. Qualitative data also suggests that people focus too much on the present when taking payday loans. Fifty-four percent of the respondents said they “would very much” want to give themselves extra motivation to avoid payday loans in the future, and only 10 percent said they didn’t want extra motivation.