Inattention and Inertia in Household Finance: Evidence from the Danish Mortgage Market

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Inattention and Inertia in Household Finance: Evidence from the Danish Mortgage Market

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Title: Inattention and Inertia in Household Finance: Evidence from the Danish Mortgage Market
Author: Andersen, Steffen; Campbell, John Y.; Meisner-Nielsen, Kasper; Ramadorai, Tarun

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Citation: Andersen, Steffen, John Y. Campbell, Kasper Meisner Nielsen, and Tarun Ramadorai. “Inattention and Inertia in Household Finance: Evidence from the Danish Mortgage Market.” SSRN Electronic Journal. doi:10.2139/ssrn.2463575.
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Abstract: This paper studies the refinancing behavior of Danish households during a recent period of declining interest rates. Danish data are particularly suitable for this purpose because the Danish mortgage system imposes few barriers to refinancing, and demographic and economic characteristics of mortgage borrowers can be accurately measured. The paper finds that household characteristics affect both inattention (a low responsiveness of mortgage refinancing to financial incentives) and inertia (a low unconditional probability of refinancing). Many characteristics move inattention and inertia in the same direction, implying a high cross-sectional correlation of 0.76 between these two household attributes. Middle-aged and older households show greater inertia and inattention than young households. Education and income reduce both inertia and inattention, but the effect of education is greater among more educated households, while the effect of income is greater among poorer households. Housing and financial wealth have opposite effects on inertia, consistent with the view that households manage their mortgages more actively when housing is relatively more important to them.
Published Version: doi:10.2139/ssrn.2463575
Other Sources: http://scholar.harvard.edu/campbell/publications/inattention-and-inertia-household-finance-evidence-danish-mortgage-market
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:17492179
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