The possible effects of inter-temporal choice models on consumer loan agreements

Abstract

The analysis and understanding of the background of consumer choices get more and more attention nowadays. A significant amount of consumer choices are traceable as one of those inter-temporal decisions of the individual that are made at different times. To map the decision-making process, it is necessary to introduce inter-temporal choice models and to show the characteristic features that are the most relevant for decision making. The discounted utility model shows the temporal features of decision-making, the characteristics of which are the positive time-preference and the time-consistent discount rate. Since the discounted utility model – in numerous cases – did not prove the characteristics of the decisions of everyday life, new models were created to describe these procedures: these are the hyperbolic and quasi-hyperbolic models. With their help it is possible to explain the main features of temporal decisions. The parameters, which show a distortion towards the present and are inconsistent in time, make it possible to explain some human behaviours that were not previously understandable. One of these behaviours is when one extends their present consumption with the help of a loan. Regarding the fact that a consumer loan can be considered to be an inter-temporal choice, it has become justifiable to compare the results of behavioural science in this field with the legislation covering consumer loans. In this study we are going to make an attempt at this comparison while also looking for an answer to the question of whether the results of inter-temporal choice models appear in operative legislation or not. If they do, we would like to see whether they are seriously taken into consideration or not. Furthermore, we would like to know what possibilities need to be considered by the legislature, law enforcement bodies and all others present in this complex field.