Sumit Kumar Maji and Sourav Prasad
Present bias (PB) is a cognitive bias that stimulates the individual decision-maker to favour the present reward even over the higher reward in the future to avoid the uncertainty…
Abstract
Purpose
Present bias (PB) is a cognitive bias that stimulates the individual decision-maker to favour the present reward even over the higher reward in the future to avoid the uncertainty attached to the reward in an uncertain future. The article attempts to examine the prevalence of PB amongst Indians and the effect of such bias on savings and borrowings.
Design/methodology/approach
Secondary data on 47,132 respondents from the Financial Inclusion Insights, 2017 database was used in the study. The theory of self-control, which is captured by the widely accepted hyperbolic discounting model, was used to explore the presence of PB. Suitable statistical techniques and the binary probit regression model were employed to attain the objectives of the study.
Findings
The prevalence of PB was found amongst 8.2% of the sample respondents. The outcome of the study endorses the view of previous researchers that present-biased people tend to save less and borrow more.
Originality/value
Although the exploration of the role of various cognitive biases on financial behaviour is gaining momentum in recent times, there is a dearth of studies exploring the prevalence of PB and its implication towards financial behaviour, especially in the context of the emerging economy of India. The study makes an original contribution in this regard by using a very rich dataset of 47,132 individuals in the Indian context for the first time.