This paper determined the predefining factors of loan repayment behavior based on psychological and behavioral economics theories. The purpose of this research is to identify whether an individual’s credit risk can be predicted based on psychometric tests measuring areas of psychological factors such as effective economic decision-making, self-control, conscientiousness, selflessness and a giving attitude, neuroticism, and attitude toward money. This research covered the psychometric test results, financial information, and loan default information of 1118 borrowers from loan-issuing applications on mobile phones. We validated the questionnaire using confirmatory factor analysis (CFA) and achieved an overall Cronbach’s alpha reliability coefficient greater than 0.90 (α = 0.937). We applied the empirical data to construct prediction models using logistic regression. Logistic regression was employed to estimate the parameters of a logistic model. The outcome indicates that positive results from the psychometric testing of effective financial decision-making, self-control, conscientiousness, selflessness and a giving attitude, and attitude toward money enable individuals’ debt access possibilities. On the other hand, one of the variables—neuroticism—was determined to be insignificant. Finally, the model only used psychological variables proven to have significant default predictability, and psychological variables and psychometric credit scoring offer the best prediction capacities.

 

Keywords: Behavior economics, Psychological factors, Determinants, The psychology of personality, Psychometric analysis, Economic factors, Credit risk, The responsible borrower, Borrower, Personality trait, Loan repayment, Indebtedness

 

Abbreviations:

CFA - confirmatory factor analysis