Abstract
It is documented that overconfidence has negative influence on numerous financial behaviours. Little is known, however, about the link between overconfidence and behaviour of consumers in debt markets. This article investigates the link between overconfidence in debt literacy and debt behaviour. To do that, we applied logit and linear regression models using data from a sample of 600 adult Poles aged between 18 and 35. The results indicate that the overconfident respondents were more likely to borrow. We obtained mixed results regarding the link between overconfidence and debt behaviour. Simple binary measure of overconfidence turned out insignificant in predicting the behaviour, however the quantitative measures of overconfidence were found significantly and positively related to unhealthy debt behaviour. Policy makers may need to run educational programmes that address the behavioural aspects of overconfidence, in order to empower society and improve debt behaviour and overall economic performance.
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