Reverse causality is yet another prospective confound, since specific actions such as for instance risk aversion and time choices could figure out indebtedness, as opposed to the reverse. We are able to rule down reverse causality as the noticeable alterations in financial obligation we learned resulted from exogenously given debt settlement. Nevertheless, our estimate of this aftereffects of debt settlement may be biased if still debt settlement is strongly correlated with initial debts.
To deal with this, To address this we show that your debt relief choices produced by social workers triggered significant variation, making sure that more indebted individuals failed to always get more relief. We unearthed that 72% of y our participants received notably less relief than their total qualified debts, and, general, debt settlement amounts had been just reasonably correlated (0.55) with initial financial obligation amounts. On average, relief awarded had been SGD 3,709 significantly less than total qualified debts, while the SD for the huge huge difference was SGD 7,293. As an additional robustness check, we excluded individuals who’d all qualified debts relieved (SI Appendix, Table S9) and discovered broadly comparable outcomes.
Next, we considered liquidity constraints being a alternate description: Highly indebted participants may display current bias and danger aversion because having cash at hand is more essential when it’s hard to borrow (13).