Debt Repayment Options and Decisions: An Experimental Study

Last registered on December 26, 2024

Pre-Trial

Trial Information

General Information

Title
Debt Repayment Options and Decisions: An Experimental Study
RCT ID
AEARCTR-0015075
Initial registration date
December 22, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
December 26, 2024, 12:13 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region

Primary Investigator

Affiliation
UHH Business School

Other Primary Investigator(s)

PI Affiliation
UHH Business School

Additional Trial Information

Status
In development
Start date
2024-12-22
End date
2025-01-31
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This study investigates how financial offers influence repayment decisions in a simulated overdraft debt management scenario
External Link(s)

Registration Citation

Citation
Jönck, Max and Markus Nöth. 2024. "Debt Repayment Options and Decisions: An Experimental Study." AEA RCT Registry. December 26. https://doi.org/10.1257/rct.15075-1.0
Experimental Details

Interventions

Intervention(s)
Participants in the control group can choose among four debt restructuring options, including maintaining the status quo, while participants in the treatment group must restructure and cannot remain in the status quo.
Intervention (Hidden)
Participants are exposed to an anchor based on a prior repayment amount.
Intervention Start Date
2024-12-22
Intervention End Date
2025-01-31

Primary Outcomes

Primary Outcomes (end points)
Repayment decisions, willingness to change the monthly repayment amount and ability to optimize decisions for maximum financial benefit
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
We designed an experimental study to explore the factors influencing repayment decisions in a financial scenario. Subjects engage in a decision-making task simulating the management of an overdraft facility, where they assess and select among multiple debt restructuring options. These options include varying repayment terms and monthly repayments. A treatment group receives modified options, excluding the option to maintain the status quo. The research provides insights by exploring how financial offers, combined with potential incentives, influence repayment strategies, savings behavior, and long-term financial planning. This study aims to uncover behavioral responses to different repayment frameworks and their implications for personal financial decision-making.
Experimental Design Details
The experiment examines how financial offers influence repayment decisions and long-term financial planning. Participants begin by completing a survey that collects background information, such as age, financial literacy, and discretionary spending habits. These variables are used as controls in the analysis to account for individual differences. To ensure a consistent understanding of the task, participants must answer three comprehension questions about the experimental setup.
The primary task involves participants allocating a fixed monthly budget between debt repayment and savings toward a future goal, such as a mortgage downpayment. Savings accrue interest at a fixed rate, encouraging participants to make efficient allocation decisions. This task simulates real-world trade-offs between short-term benefits, such as reduced monthly repayments, and long-term savings growth.
In the control group, participants evaluate four restructuring options, including the option to maintain the status quo, which involves no changes to their current repayment structure. The four options vary in terms of repayment term and monthly repayment amounts. Conversely, participants in the treatment group are required to restructure their debt, as the status quo option is not available. This intervention investigates how removing the option to remain in the current situation influences financial decision-making.
In a follow-up decision, participants can customize various aspects of their loan based on their initial choice (e.g., if the option with a high payout amount was selected, they can adjust the payout amount, with all other loan conditions changing accordingly).
The exit survey includes questions on financial literacy, risk tolerance, and time preferences, offering deeper insights into how individual traits influence decision-making. Participants are rewarded based on their total accumulated downpayment. The rewards are distributed linearly, where higher downpayments earn proportionally higher rewards. The incentivized structure encourages participants to take the task seriously.
Randomization Method
Computer
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
200 subjects
Sample size: planned number of observations
200 subjects
Sample size (or number of clusters) by treatment arms
100 subjects per treatment/control group (approximately)
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
UHH Business School
IRB Approval Date
2024-12-11
IRB Approval Number
N/A

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials