Debtors at Play: Gaming Behavior and Consumer Credit Risk

Abstract

Exploiting a unique high-frequency, individual-level database, we (1) construct individual-level, incentive-compatible proxies of impulsivity based on video gaming behavior and (2) use these proxies to evaluate predictions concerning how impulsivity shapes individuals’ responses to a relaxation of credit constraints as captured by receiving a credit card. We discover that precard gaming intensity—as measured by the frequency and amount of game expenditures—is strongly and positively associated with (a) the probability of defaulting on credit card debt in the future, (b) postcard expenditures on luxury and addictive items, (c) surges in consumption spending immediately after receiving the credit card, and (d) rapid debt accumulation after obtaining the card. Differences in financial literacy, income, income variability, education, and demographics do not drive the results. The results are consistent with (1) neurological and psychological studies stressing that excessive gaming is associated with impulse control deficiencies and (2) behavioral theories stressing that impulsivity, i.e., time-inconsistent preferences for immediate gratification and ineffective strategies for avoiding myopic cues and temptations, substantially influence individual expenditure patterns and borrowing decisions when liquidity constraints are relaxed. This paper was accepted by Kay Giesecke, finance. Funding: C. Lin acknowledges the financial support from the National Natural Science Foundation of China [Project 72192841] and the Research Grant Council of the Hong Kong SAR, China [Project T35-710/20-R]. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4931 .