present bias and individual financial behaviors (an application of behavioral economics))

Present bias, the tendency of people to discount their future preferences in favor of more immediate gratification, is one of the most common behavioral biases in financial and economic issues which is derived from the economic theory of self-control (Xiao & Porto, 2019). The research on financial and economic issues has shown that people with present bias have high discount rates (Benhabib et al., 2010), spend more than usual, save less  (Pinger, 2017; Goda et al., 2019), invest less (Kim & Nguyen, 2022), have higher debt (Meier & Sprenger, 2010), are not committed to repaying their outstanding debt (Kuchler & Pagel, 2021), and it is even possible for those who have poor financial management due to limited resources to do more budgeting and less planning (Xiao & O'Neill, 2019). Therefore, with regard to the present bias of people, it is hypothesized that people with present bias have less correct financial behaviors. This arises from a previous research about the impact of present bias on everyday financial behavior. Hence, following Xiao and Porto (2019), the present study seeks to investigate the relationship between present bias and a set of financial behaviors regarding spending, borrowing, saving and money management.

The examined sample was selected through convenience sampling using paper questionnaires among the staff and faculty members of the University of Ilam. A total of 202 staff and faculty members completed the questionnaire. Using the method of Xiao and Porto (2019), an exploratory factor analysis was done to reduce the variable number and the name-dependent variables according to the concept of financial behaviors. Ordinary least square was used to analyze the associations between the variables. For each financial behavior variable, as a dependent variable, there were three models. In model (1), only the present bias variable was the independent variable. In model (2), the present bias squared term was added to detect if there was any nonlinear pattern. In model (3), the control variables were added to examine if the present bias variables still displayed associations when these control variables were added. Based on fourteen financial behaviors and according to the exploratory factor analysis, the dependent variables were classified into managerial behavior, impatient behavior, naive behavior (according to Xiao and Porto, 2019), thrifty behavior and borrowing behavior. The independent variable was the present bias variable measured by the question "I intend to live in the present more and do not consider the future". The participants responded on a 1-5 scale. The control variables included age, monthly income, gender and education.

Examining models (1) and (2) showed a negative and significant association between present bias and managerial behavior.  It means that, when present bias increases relatively, individual's money management behavior becomes weaker. This result confirmed the association in two stages (models), but, in Xiao and Porto (2019), this association was confirmed only in one stage (model) without the presence of other variables. Therefore, the result of this study is more robust than that of Xiao and Porto (2019). Examining the association between present bias and impatience behavior in model (1) showed that there is a positive and significant association between present bias and impatience behavior. But, in models (2) and (3), the coefficient of present bias was negative, and the squared coefficient of bias showed a positive number, which indicates a U-shaped association between present bias and impatient behavior. To some extent, the hypothesis of a positive relationship between present bias and impatient behavior was confirmed. This means that the association is initially negative and then positive. At lower levels of bias, the tendency to spend decreases with the increase of bias, and, at much higher levels of bias, the tendency to spend increases with the increase of bias. This result is not completely consistent with the findings of Xiao and Porto (2019). In their study, there was a positive and significant association between present bias and impatient behavior in three stages (models). Thrifty behavior, as a new variable not identified in Xiao and Porto (2019), is the tendency to choose affordable goods by the individual. The estimation results of models (1) and (3) showed a negative and significant relationship between present bias and the tendency to choose affordable goods. In other words, as present bias increases relatively, the tendency to buy affordable goods decreases. Regarding the relationship between present bias and naive behavior, as well as preset bias and borrowing behavior, significant effects were not found in models (1), (2) and (3).

Conclusions and policy implications: 

The purpose of this study was to investigate the relationship between present bias and a set of financial behaviors through the convenience sampling of the staff and faculty members of Ilam University. The results of the research showed that there is a negative and significant association between present bias and money management behavior. There is a U-shaped association between present bias and impatient behavior. There is also a negative and significant association between present bias and thrifty behavior. The results of this study can promote effective financial decisions at the individual level and contain messages for activists, planners, and policymakers in the financial and economic fields. The results may help to formulate, implement, or modify policies.