My friend Herb argued in a recent column -- and I'm paraphrasing here -- that "debt is high and the end is nigh". I cordially disagreed with him on CNBC during one of our twice-weekly on-air visits, in part because I'm more sanguine about debt, about people's general competence to make basic financial decisions, and about changes in the economy that have made it rational for people to have more debt than they did in the past. I'm also considerably less convinced about the quality of the NIPA data (it overstates expenditures, and understates income) etc.

But I digress. The bottom line, economically speaking, is can the average person be trusted? Not people at the margin, because they're all mad, but the average person. Can they hold off their baser selves and postpone consumption when offered credit? There is oodles of research in this area, but I ran across an interesting talk from MIT tonight, which gets touches on some of this, and along the way points out the following:

[Some research] demonstrates that people like to save the best for last. In ordering a sequence, study participants chose to eat strawberries, then liquorice, and then jelly beans -- holding out for “the better thing later,” in this case, the sweetest treat. In another example of people preferring “improving sequences,” subjects chose to dine at a quotidian Greek grill first, followed by a fancy French restaurant.

But in a “weird preference reversal,” people chose to pay more for a “declining sequence,” where they would eat first at the expensive French restaurant, and then at the Greek grill. There is incoherence in people’s preferences, which has long puzzled thinkers from different disciplines.



Like this article? Share it with your friends

E-Mail | Print | More

Related Articles
Reduce Your Debts
	According to research by Callcredit (May 2005), 60% of consumers do not know how much they owe. 10% of men have no idea about their personal debts while women are worse, with 20% not knowing their personal debts. ...
Consolidation Debt Management Money
	There are some who question whether debt consolidation truly eases a person's credit problems. Although debt consolidation is highly promoted claiming that a single loan is easier to handle towards eliminating debt ...
Small Business Loans Bad Credit
	I’ve been asked this question what seems like a million times: Can I get a loan for my startup even though I have poor credit? Well, I’m not here to tell you that it’s not a problem – anyone can get a long. Quite fr...
Credit Cards, Preference Reversals, and Debt
	My friend Herb argued in a recent column -- and I'm paraphrasing here -- that "debt is high and the end is nigh". I cordially disagreed with him on CNBC during one of our twice-weekly on-air visits, in part because ...
Sage Wisdom About Borrowing Money For Your Small Business
	"Use your credit. Your cash is always good." Sage advice about borrowing money for your small business.

---

Related Forum Posts
	What is your age
	Cards with benefits
	Do you understand how debt works?
	Credit Unions
	Free Business ebooks
	Plaxo
	Building credit
	Offer Credit instead