This paper examines whether biased income expectations due to overconfidence lead to higher levels of debt-taking. We show suggestive evidence for a link between overconfidence and borrowing behavior in a representative survey of German households (GSOEP-IS). This motivates a laboratory...

Die Marktwirtschaft hat ihr Ziel, Überwindung der Not und Massenwohlstand, seit langem erreicht. So vollständig erreicht, daß die Konsumgesellschaft als ganze, empirisch belegt, durch weitere Wohlstandssteigerung nicht mehr zufriedener wird. Dennoch beharrt die Ökonomie auf dem Axiom der...

"Collateral damaged" explains how America had turned from a nation of savers into a nation of consumers addicted to debt. Wall Street then used that addiction to create "toxic securities" that threaten to bring about the collapse of the global economy. How can America get its fiscal house in...

We show that the size of collateralized household debt determines an economy's vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt...