Associate Professor Yonghao Xu, a researcher of the base, has published a collaborative paper titled "Present bias, mental budget constraint, and the payday consumption cycle" in China Economic Review.

Abstract: This study investigates the phenomenon of household consumption rising and then dropping after payday, even in the absence of liquidity constraints. Utilizing data from a large bank, we document two findings that jointly provide a rationale for such payday consumption cycle. First, we find that consumption surges around payday only among groups exhibiting strong present bias. Second, we identify the presence of mental budget constraints, where a plausibly exogenous payday surge in consumption predicts a decrease in consumption three and four weeks later, even in the absence of liquidity constraints. These findings suggest that present bias together with mental budget constraints provide an explanation for the payday consumption cycle.

Keywords: Mental accounting; Consumption; Self-control; Present bias

Link: https://doi.org/10.1016/j.chieco.2024.102306

Author profile

Yonghao Xu holds a Ph.D. in Finance from Peking University and joined the School of Finance, Zhongnan University of Economics and Law in 2021. His research interests encompass behavioral finance, asset pricing, and household finance. His research achievements have been published in domestic and international journals such as Management World, International Review of Economics and Finance, and Economics Letters. In 2022, he was awarded a Youth Project from the National Natural Science Foundation of China.