Behavioral biases and over-indebtedness in consumer credit: Evidence from Malaysia

Hamid, Fazelina Sahul

Abstract

Over-indebtedness in relation to consumer loans represents an important issue for consumers as it impacts their financial well-being. Identifying the risk factors associated with over-indebtedness is crucial in overcoming this problem. Existing literature shows that behavioral biases influence individuals’ financial decision making. This study analyses the relationship between behavioral biases and over-indebtedness among consumer loan holders in Malaysia. It aims to investigate whether self-control bias, overconfidence, mental accounting, and availability bias are linked to over-indebtedness. The analysis is done based on a sample of 433 credit card or personal loan holders. The results indicate that self-control bias is linked to higher overall over-indebtedness. Meanwhile, overconfidence and mental accounting are linked to lower overall over-indebtedness. Availability bias is shown to worsen credit card debt repayment decisions. These findings highlight the need for financial education programs that address self-control issues and raise awareness of behavioral biases, helping consumers make more informed financial decisions. Additionally, policymakers in Malaysia can leverage these insights to design targeted strategies that reduce over-indebtedness in managing consumer loans.

• Journal Article Type: Article
• Acceptance Date: Dec 28, 2024
• Online Publication Date: Jan 10, 2025
• Publication Date: Dec 31, 2025
• Deposit Date: Jan 13, 2025
• Publicly Available Date: Jan 15, 2025
• Journal: Cogent Economics & Finance
• Print ISSN: 2332-2039
• Electronic ISSN: 2332-2039
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• Volume: 13
• Issue: 1
• Pages: 1-20
• DOI: https://doi.org/10.1080/23322039.2024.2449191
• Keywords: Behavioral bias; self-control; overconfidence; mental accounting; availability bias; over-indebtedness; consumer credit
• Public URL: https://uwe-repository.worktribe.com/output/13610388
• Publisher URL: https://www.tandfonline.com/doi/full/10.1080/23322039.2024.2449191?scroll=top&needAccess=true#abstract
• Additional Information: Peer Review Statement: The publishing and review policy for this title is described in its Aims & Scope.; Aim & Scope: http://www.tandfonline.com/action/journalInformation?show=aimsScope&journalCode=oaef20; Received: 2024-08-19; Revised: 2024-12-12; Accepted: 2024-12-28; Published: 2025-01-10