Consumer Credit Behavior in Times of

Crisis: A Natural Experiment

Master Thesis

University of Maastricht – School of Business and

Economics
22.07.2010
Supervisor: Drs. ir. Nikos Kalogeras
Second Evaluator: Drs. Theo Benos
Study: IB Finance
Hannah Friedrich, i337471
Acknowledgments

I would like to thank my family and friends and all people who supported me during this
thesis and my studies at University Maastricht. First of all, I want to thank my parents. They
supported me throughout my whole study and gave me advice whenever needed. I am also
grateful to Mirko Jansen for his patience and understanding during the last month. In
particular I thank him for the valuable input and revision of this thesis.
I owe special thanks, to all who participated in this study and took time for the interviews.
Lastly, I would like to say thank you to my supervisor Nikos Kalogeras for his assistance. He
provided guidance throughout the whole process and advised me whenever requested.

1
Abstract

This research deals with consumer credit behavior in times of crisis. In view of the financial
crisis, it is important to identify the factors that drive consumer behavior. Practitioners as well
as academics need to adjust their strategies to avoid damage and losses in times of crisis.
Therefore, it is important to know whether the primary factors risk attitude, risk perception,
their interaction effect, or trust drive the reduction of credit card transaction volume.
Additionally, it is of great value to identify the secondary factors that drive risk behavior: age,
gender, nationality, education, income and trust. Data is collected via a survey among
consumers. By applying a binary logistic regression, in a first step, and ordinary least squares
regressions, in a second step, the data is analyzed. The research yields that consumer behavior
in times of crisis is affected by risk perception. Moreover, the research yields that the
secondary factors affecting risk behavior are: age and nationality.

2
Table of Content
Acknowledgments ...................................................................................................................... 1
Abstract ...................................................................................................................................... 2
List of Tables .............................................................................................................................. 5
List of Figures ............................................................................................................................ 5
1. Introduction ............................................................................................................................ 6
1.1 Introduction ................................................................................................................................... 6
1.2. Motivation .................................................................................................................................... 8
1.3. Research Question and Sub-Questions....................................................................................... 10
1.4. Outline ........................................................................................................................................ 13
2. Individual Behavior in Economic Crisis and the Credit Card Segment: A selective
Literature Review ..................................................................................................................... 14
2.1. Introduction ................................................................................................................................ 14
2.2. Payment methods ....................................................................................................................... 14
2.3. Behavioral finance: Risk Behavior of consumers, market anomalies and crisis events ............. 15
2.3.1. Behavioral Finance and Consumer Risk Behavior................................................. 15
2.3.2. Crisis events ........................................................................................................... 21
2.3.3. Credit Cards and Consumer behavior .................................................................... 22
2.4. Risk Attitude............................................................................................................................... 24
2.4.1. Risk Attitude in general .......................................................................................... 24
2.4.2. Findings on Risk Attitude ...................................................................................... 27
2.5. Risk Perception........................................................................................................................... 30
2.5.1. Risk Perception in general ...................................................................................... 30
2.5.2. Findings on Risk Perception .................................................................................. 32
2.6. Trust ........................................................................................................................................... 34
2.7. Socioeconomic factors ............................................................................................................... 35
2.7.1. Age, Nationality & Gender .................................................................................... 35
2.7.2. Education & Income............................................................................................... 36
2.8. Conclusion .................................................................................................................................. 37
3. Conceptual Model ................................................................................................................ 38
3.1. Introduction ................................................................................................................................ 38
3.2. Conceptual Model ...................................................................................................................... 38
3.3. Hypotheses ................................................................................................................................. 39
3.4. Graphical Demonstration of the conceptual Model .................................................................... 43
4. Research Design ................................................................................................................... 44
4.1. Introduction ................................................................................................................................ 44
4.2. Decision Context ........................................................................................................................ 44
4.2.1. The economic crisis ................................................................................................ 44
4.3. Research design .......................................................................................................................... 45
3
 4.4. Data Collection ........................................................................................................................... 46
4.5. Sample Design ............................................................................................................................ 46
4.5.1. Relevant sample population ................................................................................... 46
4.5.2. Sampling frame ...................................................................................................... 47
4.5.3. Sampling technique ................................................................................................ 47
4.5.4. Sample Size ............................................................................................................ 47
4.6. Questionnaire Design ................................................................................................................. 48
4.6.1. Questionnaire Type ................................................................................................ 48
4.6.2. Data-collection approach ........................................................................................ 48
4.6.3. Questionnaire Content ............................................................................................ 48
4.6.4. Pre-test .................................................................................................................... 50
5. Results and Discussion ......................................................................................................... 51
5.1. Introduction ................................................................................................................................ 51
5.2. Data analysis............................................................................................................................... 51
5.2.1. Descriptive Statistics .............................................................................................. 51
5.2.2. Knowledge and Usage of credit cards and the crisis .............................................. 53
5.2.3. Factor Analysis and Data Validity ......................................................................... 55
5.2.4. Data Reliability ...................................................................................................... 60
5.3. Statistical analysis and Results ................................................................................................... 61
5.3.1. Logistic Regression ................................................................................................ 61
5.3.2. OLS Regressions on RA and RP ............................................................................ 67
5.4. Conclusion .................................................................................................................................. 70
6. Conclusion ............................................................................................................................ 73
6.1. Main Findings............................................................................................................................. 73
6.2. Theoretical Contribution ............................................................................................................ 74
6.3. Practical Contribution................................................................................................................. 75
6.4. Limitations and Future Research ................................................................................................ 76
6.5. Concluding Remarks .................................................................................................................. 78
Reference List .......................................................................................................................... 79
Appendix 1 ............................................................................................................................... 85
English Questionnaire ....................................................................................................................... 85
German Questionnaire ....................................................................................................................... 88
Appendix 2 ............................................................................................................................... 92

4
List of Tables
Table 1 Questions on Credit Card Usage and Knowledge ....................................................... 53
Table 2 Sources of Information for consumers ........................................................................ 55
Table 3 Factor Loadings before and after Varimax Rotation ................................................... 60
Table 4 Data Reliability ........................................................................................................... 61
Table 5 Logistic Model Summary Model Fit ........................................................................... 64
Table 6 Classification Table – Goodness of Fit ....................................................................... 64
Table 7 Logistic Regression Results – Regression Coefficients .............................................. 65
Table 8 OLS Regressions – Model Fit ..................................................................................... 68
Table 9 OLS Regression Results – Regression Coefficients ................................................... 68
Table 10 Logistic Regression- Hypotheses Overview ............................................................. 71
Table 11 OLS Regressions – Hypotheses Overview ............................................................... 72

List of Figures
Figure 1 Conceptual Model ...................................................................................................... 43
Figure 2 Gender Distribution ................................................................................................... 52
Figure 3 Age Distribution ........................................................................................................ 52
Figure 4 Educational Distribution ............................................................................................ 53
Figure 5 Knowledge on Payment Methods .............................................................................. 54
Figure 6 Concerns on Credit Card Usage ................................................................................. 54
Figure 7 Payment Preference ................................................................................................... 55
Figure 8 Check for normality ................................................................................................... 92
Figure 9 Check for normality ................................................................................................... 93
Figure 10 Check for homoscedasticity and linearity ................................................................ 93
Figure 11Check for normality .................................................................................................. 94
Figure 12Check for normality .................................................................................................. 94
Figure 13 Check for homoscedasticity and linearity ................................................................ 95

5
1. Introduction

1.1 Introduction
The fact is that we are experiencing an economic crisis. Companies are facing rough waters
and consumers face lower wages and unemployment. Fact is consumers are struck hard by
this crisis. They did not expect another bubble to burst after the internet bubble in the early
2000s. However, this did happen. The mortgage bubble burst and hit the world economy. In
these times we have to deal with the situation and recover from it. Yet, one question remains.
Is another bubble - “The Credit Card Debt Bubble” - to burst? Many newspapers such as
Financial Times, the New York Times, and Der Spiegel published articles about the danger of
credit card debt. In fall 2008 it appeared that 70% of the US GDP is financed via private
consumption. This is, however, build upon $950 billion credit card debt, as American
households are used to live their lives on credit (Tigges, 2008).

During the summer of 2009, European banks feared that the credit card debt crisis spills over
from the US. As more and more people all over the world default on their debt, become
unemployed, and declare insolvency, Europe is endangered as well. An interesting fact is the
comparison of German and American citizens. Whereas Germans on average safe about ten
percent of their income each month, American citizens on average safe zero percent
(Woolsey, et al., 2009). The New York Times (2008) indicated that credit card users are
revising their habits. Consumers are less willing to rely on their credit cards and purchase less
with their credit cards. A study by Deutsche Bundesbank (2009) researches consumer
behavior towards means of payment. The results show a socioeconomic and demographic
segmentation of the credit card user market. Older people, less educated people and those who
have a lower income in Germany are using credit cards much less. Furthermore, the study
indicates that in Germany cash payment will continue to be the main payment method
(Deutsche Bundesbank, 2009). A US study from July 2008 states that 37% of US consumers
use their credit card less often. Due to the crisis consumers in the US show a cautious
behavior and cut back on their credit card usage. Nonetheless, consumers’ reaction is not the
only cause for diminishing credit card usage (Business Wire, 2008). Suppliers of banking
cards are reviewing their current strategies and offerings.

The last year’s (2009’s) figures showed that lenders are suffering from the high default risk of
credit card users (Spiegel, 2009). Credit card issuers are dealing with these problems. Raising
interest rates higher and higher it is possible to compensate for the default losses. Moreover,

6
by shortening credit lines and reducing the number of credit cards issued, banks and providers
try to reduce losses (Spiegel, 2009).

Only American Express had to announce bad results for the second quarter of 2009 as
compared to the year before. Concerning the US card services segment, the company reported
a $200 million loss for the second quarter. In other segments including the international card
service, American Express was able to maintain an income even though the figures are lower
compared to the year before. The company perceives this as an obstacle it is well able to
overcome. “Despite continued weakness in card member spending and historically high levels of
loan losses, we generated $342 million of earnings from continuing operations, strengthened our
capital base and further expanded our deposit gathering initiatives.” (American Express, 2009)
For its big competitor Visa Inc. the quarter turned out to be better: “Despite the challenging
economy, Visa continued to post strong operational and financial performance during our
fiscal second quarter, and we remain confident in delivering our EPS guidance for FY 2009,”
said Joseph Saunders, Chairman and Chief Executive Officer of Visa Inc. (Visa Inc., 2009). In
spite of the shrinking turnover on credit cards in the US the company succeeded in the effort to
increase earnings with its international business. A similar picture follows for MasterCard
Worldwide. The company was able to increase earnings due to clever cost cutting actions: “We
are very pleased with our second-quarter financial performance and are adapting well to the
challenging economic environment,” said Robert W. Selander, MasterCard president and
chief executive officer. “The thoughtful actions we've taken to realign our resources and
priorities to match customer and local market needs, as well as our sharp focus on expense
management, have enabled us to deliver strong operating margin and net income
improvements.” (MasterCard Worldwide, 2009)

Over the past year, several headlines have been published through daily news and talk-shows
about the economic crisis stating that finally countries are dealing and defeating the recession.
According to Reuters the G7 are now past the worst phase and recovering (Heller, et al.,
2009). Yet, some critics state that this is not the case, which confuses consumers as well as
myself about the current economic situation the world is facing. Especially in Germany the
press states still that the recession is not over and companies and banks are still struggling
with the economic situation. This is further accompanied when considering that several
countries are struggling. Moreover, one can see that the recession is still in progress as
currencies are depreciating. Especially in Europe the EURO is depreciating substantially due
to countries facing too high debts and failing on these (Jung, et al., 2010). Therefore, it is

7
interesting to see, whether the crisis has changed consumer behavior with respect to credit.
Analyzing consumer risk behavior and influencing factors in times of crisis is crucial to adjust
the system and strategies for the future. However, this will be elaborated in the following
chapter on the theoretical and managerial contribution of my research.

1.2. Motivation
Consumer behavior is a well researched topic in the context of marketing, and beginning to be
of greater importance in the context of finance. In order to improve strategies by politicians
and practitioners, gaining an understanding of individuals’ behavior and needs is crucial to
effectively deal with consumers. Especially in crisis events individual behavior differs and
leads to panic and market anomalies. Therefore, a study on the factors driving individual
behavior in times of financial and economic crisis helps in applying the right measures and
policies with an informative background. In order to mitigate the aftermath of the crisis, avoid
bankruptcies and to enhance recovery, an understanding of individual behavior appears to be
ever more important.

In case consumer credit behavior depends on risk attitude and/or risk perception, managers,
academics and politicians would be able to set up a system fitting better to these needs and
complying to the standards as well. To my knowledge there does not exist a study inspecting
the behavior of consumers in light of transaction volume by means of credit cards after a
crisis has hit the market and consumers. For this reason I want to research whether there is a
difference and why there is a difference in the credit card transaction volume after the crisis
from 2008 has hit the market. I believe that this research is of interest for the academic and
behavioral finance stream and may help retail banking and managers to consider marketing
strategies that fit their consumers. Moreover, politicians, under pressure to change “the rules
of the game”, get more insight and can react to the crisis in a better way.

The factors risk attitude and risk perception that I relate to transaction volume, will be applied
in a similar framework of Pennings et al (2002). Whereas risk attitude denotes how a
consumer interprets the content of risk and by how much the individual likes or dislikes the
risk content. It therefore, reflects the general predisposition to risk the consumer holds in a
consistent way. Risk perception in contrast reflects a consumer’s interpretation of the chance
to be exposed to risk. It denotes the assessment of the uncertainty of the risk content in a
particular situation and resembles the personal interpretation of the chance to be exposed to
the content of the risk. The two factors thus imply what actions can be taken to reduce or

8
eliminate the risk. If risk attitude dominates an individual’s change in consumption by means
of credit cards, only risk elimination can change this attitude. Hence, the system would need
to change in order to reduce consumers’ fear of bad credit and personal insolvency due to
redundancy and behavioral risk factors. In case risk perception dominates the change in
consumption by means of credit card, better communication can enhance perception and
purchasing behavior. Practitioners then have to restore trust to advice consumers in the best
way and inform them of the diverse credit card types and usage. This is achieved optimally by
defining the risk tolerance of consumers and adjusting products and services to the individual
risk tolerance level. Moreover, the study offers retailers advice in finding the optimal payment
system to maximize customer satisfaction and purchases (Hirschman, 1979).

In addition to analyzing risk perception and risk attitude of consumers, I want to find out the
influence of trust on consumer behavior. This factor will be included in the first step of the
analysis as well as in the second step. In the second step I want to identify by which factors
risk behavior is driven. This helps practitioners to enhance communication about financial
products and increase customer satisfaction.
A first impact on risk behavior may be derived from the observable factors of age, gender and
income. It is well documented that women behave different than men when making decisions
under risk. Moreover, in line with the life cycle hypothesis, age can influence behavior as well
as the level of income an individual has for consumption. Besides these factors education and
nationality play a role in the level of risk tolerance and will be analyzed in the study. It is well
known that different country specific mentalities and cultures lead to diverse behavior and
dissimilar reactions to a crisis. In addition, risk behavior may depend on trust a consumer has
in the specific product and service and her experience within this sector.
In light of the theoretical contribution, my study offers an addition to the controversial
discussion between traditional and behavioral finance. In times of crisis, traditional finance
explains consumer behavior with the help of anomalies, whereas behavioral finance
developed theories to explain irrationality. Moreover, existing literature is extended with a
study upon the consumer behavior in a crisis. This enhances as well the discussion on
consumer behavior from the point of view of marketers and academics in the marketing field.
Furthermore, by applying a model decoupling consumer risk behavior, focus is shifted to the
reasoning of risk behavior and other psychological factors influencing consumer behavior, as
done in other literature (Pennings, et al., 2002).

9
1.3. Research Question and Sub-Questions
Currently financial risks are in the spot light of governments and consumers. Apparently, the
reasons for the crisis do not seem clear. Economists were not able to forecast the crisis and
provide guidance through the crisis. However, with some hindsight economists agree that
excessive risk taking of market participants has caused the systems to fail and markets to
crash (Cowen, 2009). The popularity of deregulation especially in the financial sector
enhanced the trend of innovation. Yet, as innovation became faster and faster, regulators lost
track of what the players in the financial market did. Institutions invested in high risk products
unbalancing the system and leading to the collapse.

As consumer behavior tends to be irrational, especially in times of crisis, it is important to

define the psychological factors influencing behavior. An analysis like that explains the
behavior and shows how individuals respond to an economic crisis. By defining the emotions
and factors that are part of making decisions under risk, practitioners are able to avoid the
herding effect in later crises and restore trust by repairing relationships (Gounaris, et al.,
2009). As researchers found out that emotions such as fear and hope determine the decision
an individual makes under risk (Lopes, 1987), it is important to recognize this and adjust to
the behavior by reliable high-quality advising.

By relating consumer risk behavior and the consumption pattern by means of credit cards, as
well as psychological and emotional factors this study aims to understand consumers. Since
consumer behavior deviates from its “rational” behavior and perceived risk is considered in a
different way in times of crisis, the framework decouples risk behavior in two components as
mentioned above. This framework may help to develop strategies for crises and resolve these
without engaging in high losses and lots of bankruptcies, private as well as commercial.
Defining the psychological factors leads to predictable irrationality and an understanding to
resolve these problems.

In light of the current situation and individuals being annoyed and disappointed of the
reckless behavior from bank-advisors and practitioners the identification of drivers of
consumer behavior is ever more important. An effective communication needs to rebuild trust
and confidence in a renewed system.

For this reason the main problem statement underlying my research will be:

What drives credit card usage of consumers in times of crisis?

10
Governments and private people have reacted to the economic crisis directly. Several
reductions of the prime rate, short time work, investments in gold, and lower consumption on
the consumer side pave the economic crisis so far. By discussing the regulations and
commending financial practitioners, governments try to develop strategies and relieve tension
on the market. However, these measures appear to be less suitable than governments assume.
More drastic and different measurements need to be designed and implemented to calm
consumers down and reduce the economic damage. As consumer behavior is not consistent
with the true level of risk in times of crises, strategists may be misled. Not being able to
forecast consumer reactions to the crisis and distinguish the factors influencing behavior
allows governments to take wrong measurements and impairing the crisis even further. In
order to effectively manage the crisis situation, a thorough understanding of what drivers
affect consumer behavior is essential to decision makers. This way signals towards either the
supply or demand side are more effectively communicated. Additionally, strategies are more
in line and consistent to solve the crisis with respect to both of these sides.
According to Taylor (1974) consumers face risk because of choices they make whereas the
outcome is uncertain. This risk leads to diverse consumer behavior depending on several other
factors. Emotional aspects of the individual and situational factors, such as a crisis, influence
consumer behavior and lead to the unpredictable outcomes in the respective situation. To
analyze and explain the inconsistency in consumer behavior, Pennings et al. (2002) decouple
risk behavior of individuals into risk perception and risk attitude. These two components are
considered separately as well as an interaction of both factors. Within the context of the
financial crisis I define the components as follows and in line with the definition of Pennings
et al. (2002):
Risk attitude (RA) reflects the predisposition to a particular risk in a consistent way that an
individual faces when making a decision under risk. It describes the content of the risk and
states how much a consumer likes or dislikes the risk that arises because of the financial
crisis.
Risk perception (RP) reflects the interpretation of the likelihood to be exposed to the content
of the risk an individual has when making decisions under risk. This component describes
how the individual assesses the uncertainty of the risk content in a particular situation. Hence
it defines the subjective probability that the risk through the financial crisis will influence the
consumer’s life (bad credit, insolvency) and reveals the individual’s awareness.
The interaction of RA and RP (RA*RP) analyzes the interaction of the individual’s attitude
towards risk and the subjective interpretation of being exposed to this risk. It shows that if a

11
consumer is highly risk averse, and dislikes risk, she will attempt to reduce the chance of
being exposed to this risk.
The behavioral factor trust is harder to define, yet important as it influences consumer
behavior. With respect to financial issues many individuals rely on bank advisors and rules
and regulations from the government. In a crisis these points of reference are weakened.
Consumers feel that bank advisors and politicians are responsible for the crisis and the events
happening to them. Therefore, their trust in advisors and the system is no longer existent,
leading to panic and herding behavior. Experience with and information on the “hot topics” in
a crisis influence consumer trust as well. An experienced business man identifies the risk he is
exposed to and acts upon this. Furthermore, he will assess the information given by media and
government on a diligent basis and take decisions accordingly.
In light of the two components, risk perception and risk attitude, that I want to build the model
on, several additional research questions evolve that will be discussed with this paper. Hence,
the factor trust and its impact on consumer behavior will be analyzed and poses a fourth
research question:
Does risk perception drive the reduction of credit card transaction volume?
Does risk attitude drive the reduction of credit card transaction volume?
Does the interaction between both, risk attitude and risk perception drive the reduction of
credit card transaction volume?
Does trust consumers have in financial institutions and governmental actions drive the
reduction of credit card transaction volume?
As I will analyze several other factors that may drive the consumption behavior, subquestions
evolve concerning the demographics and socioeconomic factors. These factors will be
analyzed in a second step of the research.
Several streams of literature indicate that age as well as nationality influence the behavior of
consumers. The reason for this can be explained by the behavioral life cycle hypothesis
(Shefrin, et al., 1988). Moreover, Pennings et al. (2002) state that the cultural difference
between American citizens or Dutch citizens and Germans is quite high. Germans are less
trusting in information from their government and act more rational than the other nations.
Concerning gender, Barber and Odean (2001) find that females and males react differently
with respect to making investments. This indicates that consumption behavior may be
different as well, depending on the gender, and that women might be more careful when they
perceive a higher risk. Besides this, additional observable factors are education and income of
the individual. Depending on the degree of education, an individual is better able to identify

12
the true level of risk and act upon this knowledge. Income is an interesting factor as it may
change an individual’s reference point and allow for higher or lower risk aversion.
These aspects indicate the importance to analyze the various factors influencing consumer
behavior in times of crisis and show that purchasing behavior by means of different payment
methods can be influenced through the crisis. The discussion above leads to the following
subquestions to be discussed in this thesis:
Why do consumers react differently to a crisis?
Do demographic and socioeconomic factors influence the reduction of credit card transaction
volume?

1.4. Outline
This thesis is set up in six chapters. The first chapter introduced the topic by giving a short
overview of the present situation and reactions to the economic crisis as well as introducing
the concept of risk behavior. In the second chapter I will proceed with an overview of existing
literature and past research upon behavioral finance, risk behavior, risk attitude, risk
perception, crisis events and socioeconomic influences. The third chapter will then explain the
conceptual model of my thesis, whereas the fourth chapter elaborates on the research design.
Chapter five composes the results section with data analysis and outcomes. In order to
conclude the thesis, chapter six presents the findings, as well as implications and limitations
of my study.

13
2. Individual Behavior in Economic Crisis and the Credit Card Segment:
A selective Literature Review

2.1. Introduction
The research will combine the behavioral finance stream with the practical stream on financial
products. In order to review the various pieces written on this topic and contributing to my
research, I study the risk behavior of individuals as well as literature upon the topic of
payment methods, their usage and consumer attitudes. The resulting theoretical foundation
will then be employed to investigate individuals’ response to the economic crisis. Despite the
vast research upon consumer risk behavior from the marketing stream, I will focus upon the
financial context in the literature. Following closely the framework of Pennings et al. (2002)
and Kalogeras et al. (2010), this research deals with the decoupling of the risk response
behavior of consumers into the separate components of the risk perception and risk attitude.
Moreover, it will be analyzed what other demographic and socioeconomic factors influence
individuals’ risk behavior.

In the next section I will first review the different payment methods. In a second step, I will
review the basic behavioral finance topics applying to my research topic. Furthermore, I will
review the individual behavior as well as crisis events. Third an overview over the existing
academic work and concept of risk attitude and risk perception is given, whereas in a last step
various influencing variables will be reviewed, before concluding the section.

2.2. Payment methods

Individuals have the choice to pay by means of different techniques when purchasing products
and services. The most common payment method is paying cash. Besides this, consumers
may pay with check, bank transfer, or credit cards. I will concentrate on the credit card
payment only and elaborate on the mechanism behind this payment method. A credit card
allows an individual to pay cashless at the respective contracting partner. This implies that the
credit card holder is liable to the card issuer and holds a short-term credit. The card issuer can
be any bank, credit institution or credit card company. The issuer is then obligated to pay the
contracting partner and needs to claim the amount outstanding with the card holder.

There are four basic types of credit cards: Charge Cards, Credit Cards, Debit Cards and
Prepaid Cards. These credit cards differ according to the payroll accounting system. The
Charge Card is one of the most common card types in Germany. This system accumulates
turnover on a monthly basis on a separate card account. This account is then balanced once a
14
month by the card holder. The system represents a short-term interest free credit, whereas the
credit line is set individually.

The Credit Card in its classical sense and usage in fact provides a credit to the individual. It is
one of the most common card types in the US and turnover is accumulated on a monthly basis
as well. The amount can then be paid in one lump sum directly, considered as non-revolving
credit cards and less common in the US, or in monthly installments at a later point in time,
considered as revolving credit cards. The installments are then charged with an interest and
the card issuer may require a minimum redemption directly.

The Debit Card functions in a different way than the credit card but its acceptance among
American citizens has risen dramatically. Using this card, turnover is directly withdrawn from
the account of the card holder, similar to the common checking account. Hence, the card
holder pays directly and does not take out a loan. Alternatively though, the debit card can be
employed on the basis of credit-side settlement. The account is balanced on a monthly basis in
that case, with the option to pay one lump sum or installments.

The Prepaid Card is an alternative to the classic credit card. The system requires the card
holder to load the card with credit prior to making purchases either through a cash transfer or
from the account. This credit is then charged with interest and can be used for purchases
(Grill, et al., 2003). The next section will present a general overview of behavioral finance
and the applicable theories to the topic at hand.

2.3. Behavioral finance: Risk Behavior of consumers, market anomalies and

crisis events

2.3.1. Behavioral Finance and Consumer Risk Behavior

According to Taylor (1974) consumers are exposed to risk because of the central problem:
choice. When making a choice, the consumer only knows the outcome after having made the
choice. Therefore, consumers are forced to deal with risk. Any risk associated with the
decision making process of a consumer has two aspects. The consumer faces uncertainty
about the outcome and uncertainty about the consequences of the outcome. This risk is
interpreted as a loss for the consumer and can be of psychological or economical value to the
individual (Taylor, 1974). Considering this discussion in light of financial theories, we arrive
at behavioral finance.

15
In contrast to the traditional finance theories, behavioral finance assumes that investors are
not risk neutral. Considering the research at hand it means that with respect to finance,
consumers will not respond in a rational manner towards the current market movements and
economic conditions. When making decisions under risk the prospect theory by Kahneman
and Tversky (1979) applies. This theory opposes the expected utility theory in that individuals
are risk averse. Consumers faced with uncertainty will evaluate and then choose a specific
outcome with respect to a reference point. In this respect only gains and losses are considered.
Hence, individuals do not decide rationally but will be risk seeking in the domain of losses
and risk averse in the domain of gains. In addition, outcomes will not be evaluated according
to probabilities but according to subjective decision weights. This theory indicates that
individuals’ behavior deviates from rational decision making and depends on the respective
situation (Kahneman, et al., 1979). This behavior causes errors repeatedly and distorts the
market, which is specifically negative in light of crises.

Research in traditional finance claims, that markets tend to be inefficient, but these
inefficiencies are explained with market anomalies. The most popular ones being the calendar
effect (also seasonal effect: the effect represents the believe that at certain periods in a year
prices change above average and indicate investment opportunities, (Thaler, 1987)), the
dividend puzzle (the puzzle represents the fact that companies that pay dividends are
rewarded with higher valuations by investors, despite the fact that payment of dividends
should not matter to the firm value, (Myers, 1983)), and equity premium puzzle (the puzzle
represents the fact that investors in stocks earn abnormal higher returns than investors in
government bonds (Shefrin, 2002). However, we have behavior specific anomalies as well,
such as the disposition effect (this effect represents the behavior of investors to hold on to
investments in stocks losing in value and sell those stocks that are gaining in value, (Shefrin,
et al., 1985), momentum investing (this term refers to the investment strategy of market
participants to buy stocks with high returns over the last period of three to twelve month and
sell those with low returns over the last period in order to make a return of up to 1%,
(Jegadeesh, et al., 1993) and herding behavior (the tendency for individuals to behave as a
herd in an economic turmoil and rush in or out of the market, (Chiang, et al., 2010).
Discussing whether markets are efficient or inefficient, is beyond this research. Yet, I want to
emphasize that traditional finance may not explain the inefficiencies accurately and
behavioral finance can contribute to the resolution of some anomalies with respect to decision
making under risk.

16
As mentioned above individuals behave rather irrational and behavioral finance tries to
explain this behavior through behavioral anomalies, heuristics and framing. The major frame
dependence to consider in context of my research is loss aversion. Individuals are loss averse
and cannot come to terms with the losses they make. Kahneman and Tversky (1979) explain
loss aversion in context of the prospect theory. According to the theory, people weigh losses
heavier than gains and suffer from “get-evenitis”. In academic literature this phenomenon is
called the disposition effect. It accounts for the disposition of individuals to sell “winners” too
early and ride “losers” too long. This means that investors are prone to loss aversion and hold
on to losing stocks while they fear a winning stock to lose value in the near future and sell
those. In their article Shefrin and Statman (1985) develop a model that incorporates the
behavioral elements of prospect theory, mental accounting, regret aversion and self-control to
explain the disposition effect and decision-making under risk.

The prospect theory induces individuals to act risk seeking in the domain of losses and risk
averse in the domain of gains. For this reason, individuals hope to gain with losing
investments in the future and hold on to them. Mental accounting will be analyzed further
below and describes the segregation of different types of investments into separate mental
accounts. Due to “get-evenitis” and loss aversion individuals avoid closing accounts at a loss,
which could be circumvented by transferring the assets. This action prevents the individual
from closing an account at a loss and hence avoids the realization. Moreover, as individuals
seek pride and avoid regret, the disposition effect appears to be a natural consequence. Similar
to the risk behavior under the prospect theory, individuals will prefer to realize gains and
enhance their pride while they will avoid realizing losses in order to circumvent regret for the
decision. The fourth element, self-control, approaches the intrapersonal conflict an individual
faces in the context of decision making under risk. This conflict appears between the rational
part, the planner or principal who has willpower, of an individual and the emotional myopic
part, the doer or agent representing pride and regret. Emotions influence the decisions made,
wherefore the individual needs to restrict herself by taking measures of self-control. These
measures force loss realization via stop-loss-orders for example (Shefrin, et al., 1985).

This discussion indicates that emotions influence individuals when making decisions. In
greater detail emotions influence individuals’ tolerance for risk as Lopes (1987) explains.
Hence, this tolerance for risk influences consumer credit behavior in times of crisis. Several
emotions determine the tolerance for risk: fear, hope and goals directing towards aspirations.
Hence, markets are not solely driven through the emotions greed and fear. There are more

17
emotions that influence an individual’s behavior and go beyond those two. The two emotions
fear and hope induce individuals to focus on either unfavorable or favorable events,
respectively. As a third pillar individuals focus on goals they aspire, for example retirement or
children’s education, relating risk tolerance to the behavioral life cycle hypothesis (BLC).

This hypothesis seeks to explain how people chose among consumption and saving over the
course of their life cycle with behavioral factors and represents one anomaly contrasting
efficient markets. The BLC hypothesis may shed light on my research topic and explain part
of the reason to include behavioral aspects into academic studies. Based upon the rational
microeconomic concept from Modigliani and Brumberg (1954), Shefrin and Statman (1985)
see their research as an extension to explain the irrational behavior of consumers over their
life time. Therefore, in addition to the general finding that consumption is not based upon
current income but depends on a constant percentage of the present value of the individuals’
life income the BLC includes the behavioral factors of self control, mental accounting and
framing (Shefrin, et al., 1988).

Self control has been discussed above with respect to the prospect theory, for which reason I
will focus on framing in this section. Framing addresses the fact of how individuals organize
their mental accounts in a decision making context. Hence, it describes cognitive as well as
emotional factors and offers a distinction between their form and substance. Individuals will
frame their personal accounts according to income and wealth, whereas the wealth accounts
are tempting for riskier investments. When comparing the traditional theory to the behavioral
theory, the BLC offers an explanation for the irrational behavior of individuals. Moreover, in
their article Shefrin and Thaler (1988) find that with respect to saving over the life cycle,
behavior cannot be explained with one single utility function and that other factors than age
and wealth, such as payment method of income may affect the consumption. This appears to
be of interest, as the life cycle seems to influence risk tolerance and that this tolerance is
affected by several factors including emotions (Shefrin, et al., 1988).

Regarding the emotions fear and hope, and aspirations, the emotional time line explains how
the life cycle relates to emotional factors and how these affect risk tolerance. On the
emotional time line time moves ahead from left to right and investment decisions lie at the
left, whereas goals and thus aspirations lie on the right side of the line. Along this time line
individuals experience diverse emotions, from making a decision, waiting and finally
realizing the outcome. Placing positive emotions above the time line and negative emotions
below the time line, the relation between the process of making decisions and emotions
18
becomes clear. Above the time line hope is transformed into anticipation and at a later point in
time into pride, whereas below the time line fear is transformed into anxiety first and then into
regret.

As individuals evaluate their alternatives, hope and fear play a vital role. From a bottom-up
perspective, the emotion fear causes an individual to consider the worst case scenario and
addresses the desire for security. In contrast the top-down perspective, based on the emotion
hope, addresses the upside potential and hence a best case scenario. The tolerance for risk
according to Lopes (1987) is determined by these two conflicting emotions. Every individual
is subject to the two perspectives mentioned above, however these are not equally matched.
For that reason individuals react in different ways when making decisions under risk,
depending on whether fear or hope is the dominant emotion (Shefrin, 2002).

Hence, investors select their portfolios in form of a layered pyramid. These pyramids
represent safe securities at the bottom and highly speculative investments at the top. By
planning their financial situation investors “apply hope” and decide how much of their
financial recourses to devote to each layer of the pyramid. Fear and hope will determine the
tolerance for risk an investor is willing to accept, depending on the aspiration level they set
for themselves (Shefrin, 2002). This discussion underlines the importance of emotions in the
decision making process under risk and shows that individuals cannot be considered to make
truly rational choices.

The work of Prelec and Loewenstein (1998) addresses the behavioral and emotional aspects
of consumer decisions compared to standard economic theories as well. In the standard
economic account of consumer behavior, the present value of payments is minimized to
derive the greatest utility. However, considering hedonics consumers feel a “pain of paying”.
In order to conceptualize this behavior, the authors suggest a double entry mental accounting
theory. This theory describes how the reciprocal relationship between the pleasure of
consumption and the pain of paying interfere and the impact they have on consumer behavior
and hedonics. Consumers create mental accounts to distinguish and affiliate consumption and
payment. In these accounts consumers are able to balance their expenditures and utility from
consumption. Although traditional theory suggests that immediate consumption and deferred
payment is preferred, the model at hand depicts strong debt aversion and a preference to
prepay. This underlines the central assumption of the double entry mental accounting theory,
the prospective accounting. In this case consumers consider consumption that has been paid

19
beforehand as free and “buffer” the pain of paying by thinking of the benefits the
consumption will bring, such as for a vacation paid in advance.

The theory is based upon two sets of entries. One captures the net utility from consumption
after subtracting the disutility from the “pain of paying”, whereas the second one captures the
net disutility after the utility from consumption has been subtracted. As a consequence
consumers face imputed costs attenuating the consumption and imputed benefits buffering the
disutility derived from payment. These costs and benefits, however, depend on the timing of
consumption and payment as well as the method of payment. A second assumption in the
theory is the prorating assumption. In this case consumers spread a single payment over
several acts of consumption or a single utility over several payments. The last assumption,
coupling, implies that consumers impute the costs and benefits of consumption imperfectly.
Regarding debt aversion consumers evaluate acts of consumption and the payment depending
on whether one account is in the red or the black numbers. This implies consumers desire to
keep accounts in the black and rather pay off the act of consumption before the utility has
dissolved. Due to this phenomenon it is no surprise that debit cards are preferred over credit
cards and became popular. The main advantage for consumers in this case is the fact of not
being indebted through an act of consumption. Another behavior describing the preference for
prepayment is the mental prepayment. Consumers set aside money for future consumption.
However, this is not only done to exert self-control but enhances the hedonic benefits of
consumption. Fixed fees exert a similar utility for consumers, by eliminating the uncertainty
of the payment amount. Considering the payment devices an interesting aspect is the
interference of credit card payment and the third assumption, coupling (Prelec, et al., 1998).

In addition to the recent developments in consumer behavior towards credit card transaction
volume, some researchers have found further factors influencing consumer behavior. Zinman
(2009) finds an increase in debit card usage and a decrease in credit card transaction volume.
His results show that consumers holding revolving credit cards are more likely to use their
debit card as well as consumers facing higher costs on their marginal credit card charges.
Furthermore, as credit limit constraints are stricter, consumers prefer debit cards over credit
cards. Nevertheless, the possession of a credit card reduces the probability that consumers pay
by means of debit cards. By considering the four margins of acceptance: security, time costs
and probability and controlling for demographics, financial attitudes, income and ownership
of an ATM card, Zinman (2009) concludes that consumers do not choose payment methods

20
randomly but on a rational basis. Yet, he cannot reject models based on mental accounting,
linking us back to behavioral finance theories (Zinman, 2009).

In order to advance the understanding of the various building blocks of this research, I will
now review crisis events and link these themes in the concluding section.

2.3.2. Crisis events

Why did the current financial crisis occur and how do individuals respond to crisis events?
This research aims to increase the understanding of the role of risk attitude, risk perception
and trust of the individual decision making behavior in times of crisis. Therefore, I analyze
this crisis event and its effect on consumer behavior before developing the conceptual model.

According to Malmendier and Nagel (2009) experiences of macro-economic shocks have

long-term effects on risk attitudes of individuals. Specifically, they find that individuals, who
have experienced stock markets with high returns throughout their life, encompass lower risk
aversion. Individuals, who experienced high inflation, are more risk averse. Those will avoid
investing their wealth in bonds and prefer “inflation-proof cash like” investments. Although,
most recent events have had the strongest effect on risk attitude, experiences in the early life
of an individual influence risk behavior as well and this impact fades only slowly. This
analysis supports the view that economic events, an individual experiences, impact risk
behavior and beliefs more than historical facts learned from information in books or other
sources. Hence, investor behavior depends on the experienced events and is subjective.
Wherefore it cannot be objectively determined through publicly available information and
applied in rational models (Malmendier, et al., 2009).

The current economic crisis will certainly influence individuals’ behavior and the future with
respect to the financial system and its regulations. However, if the crisis is this obvious in
hindsight, why did politicians and economists not identify the crisis earlier? Schneider and
Kirchgässner (2009) define three main problems to have caused the current crisis. First of all,
financial innovation and highly complex products line the way. In addition, deregulation of
capital markets and excessive spending by consumers lead towards cheap credit and easily
accessible money on an opportunistic market. By using models based upon rational
individuals and stable markets for predictive purposes, unrealistic scenarios were developed.
In volatile and unregulated markets rational models are not reliable. For this reason, the
financial sector developed more and more upon a bubble of high risk investments and
speculative instruments. In contrast, these type of investment tactics were recommended by
21
highly reputable analysts and managers (Madoff scandal: Madoff used the Ponzi scheme for
one of the largest investor frauds until today and represented one of the main market makers
in the financial market; He operated an investment fund on the basis of the Ponzi scheme and
caused a damage of over 50$ billion to around 4800 individuals). Individuals trusting in this
system followed recommendations and wanted to profit from “cheap money” (Schneider, et
al., 2009). Therefore, an unstable system cracked and finally collapsed in a world economic
recession. To learn from these errors, the system needs to change. Moreover, new regulations
need to be installed and people need to understand that investments yielding high returns are
of higher risk. Many individuals lost pensions and other savings, hoping to earn money as
they did not consider the risk behind these investments. Thus, the future may change due to a
different risk behavior of individuals especially with regard to financial matters.

As mentioned before, the economic crisis spread over the whole world and demonstrated that
the financial system is globally linked. Therefore, it is difficult for governments and managers
to induce the correct measures. Decision makers are not able to properly forecast individuals’
behavior in a crisis situation, particularly at the infant phase of a global crisis. As individuals
are subject to framing and herding effects, it is of importance to respond in the most
appropriate way and limit their loss from such a crisis situation. Pennings and Grossman
(2008) suggest encountering this problem with a framework of two dimensions. Defining risk
attitude and risk perception based on Arrows and Pratt’s framework it is possible to quantify
risk behavior. As an extension they introduce the behavioral outcome space (BOS). The BOS
denotes the behavior of all citizens and by minimizing the BOS, it limits the uncertainty in a
crisis situation. Hence, uncertainty is converted into risk, for which reason decision makers
can assess the behavior of individuals and apply appropriate measures. The analysis then
allows determining factors influencing and driving risk behavior, revealing important
indications in a crisis situation and possibly limiting damage (Pennings, et al., 2008). In case
of a financial crisis this aspect is essential as well and the components will be further
reviewed in the following section.

2.3.3. Credit Cards and Consumer behavior

Two main risks raise concern with regard to credit card usage. First of all consumers may not
fully understand implications and costs credit cards render. Furthermore, the risk of
overindebtedness or financial distress due to bankruptcy and bad credit pose risks for
consumers. Based upon this, consumers develop a general attitude towards credit cards and

22
adjust their usage behavior. The two main purposes for consumers to use credit cards are
substitute for cash payment and a source of revolving credit. Hence, almost every household
possesses a credit card and uses these for some purchases. The general attitude by consumers
on whether credit cards are good or bad were found to be more negative than positive in the
year 2000 (Durkin, 2000). However, credit card owners viewed credit cards more positive
than the general population. Additionally, the survey showed that consumers perceive credit
cards in a different way depending on the personal use and experience with the payment
method. Thus consumers possessing more than three cards and with outstanding balances,
consider credit cards less positively than those consumers with less than three credit cards,
being in balance on their accounts. The generally worsened attitude towards credit cards may
steam from the fact that consumers feel confused about some practices. The general opinion
of consumers towards others use of credit cards appears to be very negative. Consumers fear
that too much credit is available and that practices in the credit card market are somewhat
negligent (Durkin, 2000). Nevertheless consumers feel positive about their personal usage of
credit cards, but would appreciate more information about credit terms, costs and the time to
pay off credit. Although these attitudes depend on the demographic and socioeconomic
situation, the article indicates that consumers are aware of risks and uncertainties within the
credit card market. Despite this knowledge, consumers are willing to use credit cards and
make purchases on credit. I expect this behavior to have changed in light of the financial crisis
and the turmoil in the banking system due to the credit crunch.

An interesting study on usage behavior, relating to the findings of Durkin (2000), defines four
different types of credit card attitudes that consumers are subject to. Consumers who have a
“credit card averse” or “credit card felt-involved” attitude purchase less by means of credit
card. In contrast consumers subject to “credit card prone” attitudes and “outer-directed credit
card” attitudes have the tendency to charge their credit cards as much as possible (Kara, et al.,
1996). Therefore, depending on the attitude consumers behave differently when making
purchases and practitioners may consider this when offering services and products. Yet, other
factors such as demographics and socioeconomic aspects as well as experience with credit
cards influence usage behavior. This means that consumers view credit cards either as bad and
consider them fairly risky, wanting to repay all debt at the end of the month, or they consider
credit cards as good, providing services otherwise not available (car rental, hotel etc), and do
not worry about debt burdens. It appears that consumers perceive some kind of risk, but also
constitute a risk as they behave improper due to misguidance, which can be changed by
providing better information and services.
23
Despite the risk of not being able to pay back the debt of purchases on credit card, consumers
form positive attitudes about credit cards. This is mainly due to ownership and experience,
where consumers consider credit cards as very popular and easy to use. The information
individuals collect on credit cards, are mainly provided through the banks, where consumers
have their personal bank account. In addition consumers collect information from friends and
family and to a lesser extend from flyers and commercials. However, consumers consider it
strenuous to apply and purchase a credit card in the first place. One might expect this view to
change in light of the crisis. Furthermore, as consumers were and are aware of costs of credit
cards, it can be expected that the crisis changes attitudes to the perception of these costs and
perceptions on companies.
Overall it can be seen that consumers have always considered that there is the risk of
overindebtedness. Yet, credit cards are used and usage behavior may not entirely comply with
the attitudes towards credit cards, when considering the awareness of costs and information
grievances. In light of the crisis this behavior may have changed towards a more cautious and
anticipatory behavior, which will be analyzed within this study.

2.4. Risk Attitude

The following section will first of all discuss risk attitude in general after which I will review
literature upon risk attitude of consumers and risk attitude of individuals within the financial
context. Thus, this section seeks to introduce the basic theoretical pillars of the conceptual
model for a better understanding of the research.

2.4.1. Risk Attitude in general

Risk attitude poses one dimension in the context of making decisions under risk. The
definition that Pennings and Wansink (2004) and Pennings et al. (2002) give for risk attitude,
implies that consumers have a general predisposition to risk in a consistent way. Hence, when
making a decision the consumer interprets the content of the risk she faces and expresses how
much she likes or dislikes this risk. This risk attitude ranges from being risk seeking to being
extremely risk averse. In order to analyze the relationship between risk attitude, risk
perception and the interaction of both, Pennings et al. (2002) base their framework upon the
work of Pratt (1964) and Arrow (1971).

In their work the two researchers develop an equation stating the relationship between risk
attitude, risk perception and the interaction of both. Therefore, they define risk management
to be reflected in a risk premium 𝜋. This risk premium is a function of risk attitude, where r is
24
the risk aversion, the specific base situation, where W is the base wealth, and risk perception,
with a mean of 𝜀 and 𝜎 2 , a variance of source of additional wealth ε. An individual managing
risk is then considered to be indifferent between the exposure to risk, being involved in the
risky situation, or the mean value minus the risk premium. Expressing this relationship in
form of the expected utility model reveals the following equation:

𝐸𝑈 𝑊 + 𝜀 = 𝑈(𝑊 𝜀𝑓 𝜀 𝑑𝜀 − 𝜋)

with 𝑈 ∙ being the Neumann Morgenstern utility

and 𝑓 ∙ the probability density function of additional wealth 𝜀

Rewriting this formula, it is shown that by introducing the Pratt-Arrow coefficient of absolute
1
risk aversion 𝑟 𝑊 = −𝑈"(𝑊)/𝑈′(𝑊) the risk premium equals 𝜋 = 𝜎 2 𝑟(𝑊). Hence, Pratt
2

and Arrow reveal that risk management behavior of individuals is dependent on the three
components risk attitude, risk perception and the product between them. This decoupling
offers us to arrive at better strategies and make better predictions with respect to consumer
behavior and individuals’ decision making under risk. For this reason I will apply a similar
framework in my conceptual model. However, there are different ways researchers defined
risk attitude and measurements for this component that I will shortly review as well.

The extension to the above mentioned expected utility framework by Pratt and Arrow is given
by Kahneman and Tversky (1979). With regard to the above discussion of behavioral finance
theories and in particular the prospect theory, a slightly different definition of risk attitude is
provided. Under this definition an outcome from making a decision under risk is assessed
relative to some reference point of the individual. Yet, risk attitude is based upon a value
function, under which individuals act risk seeking in the domain of losses and risk averse in
the domain of gains. Important to notice here is the definition of making decisions under risk,
not uncertainty.

In a further extension Kahneman and Wakker (1995) introduce the prospect theory including
the weighting function to decision making under uncertainty. They specifically define
uncertain events as sports events or the weather and risk as the risk individuals face in certain
situations. Hence risk attitude is essentially converted into “uncertainty attitude”. The main
difference in this definition is that people consider uncertain events in light of possibility and
certainty, whereas risk is considered in light of probabilities. In traditional prospect theory the

25
weighting function is incorporated to explain decision making under risk, and specifically the
s-shaped curvature of the function due to certainty and “lottery”. Kahneman and Wakker use
this weighting function in the context of uncertainty to explain that an event has a greater
impact on the individual whenever impossibility is turned into possibility or possibility into
certainty. This is in contrast to the traditional prospect theory where the specific event is
simply more or less likely to happen.

Another definition for the concept of risk attitude is provided by Dyer and Sarin (1982). In
their study the authors propose two factors that influence an individual’s preference for risky
alternatives. On the one side there is the strength of preference an individual feels for the
specific consequences. Whereas on the other side there is the individual’s attitude towards
risk taking. Therefore, Dyer and Sarin (1982) propose the relative risk measure to separate
marginal value for outcomes from attitudes towards uncertainty. As these two factors were
confounded in the conventional expected utility framework, the work of Dyer and Sarin
(1982) attempts to enhance research in this field. The new relative risk measure enhances the
understanding of an individual’s attitude towards risk. Moreover, it improves the way an
individual can combine preferences of several experts in the context of multi-criteria decision
making. It can provide a better understanding of the implications that commonly used
preference aggregation rules in group decision making offer. Thus, relative risk attitude
implies that individuals have a constant relative risk attitude, whereas the measurable value
function around the status quo point follows the s-shaped curvature as developed by
Kahneman and Tversky (1979). A constant relative risk attitude indicates a stable personality
trait of the individual. More concretely this means that individuals may consider risk
introduced by a lottery with decreasing marginal value. The strength of preference for a
specific alternative defines the most valuable outcome. Hence, in case an alternative becomes
slightly better by chance of lottery an individual’s marginal value of this alternative indicates
a decreasing function. For this reason Dyer and Sarin (1982) denote the individual as
relatively risk neutral in that specific situation. By introducing this new concept the authors
expand the research in the risk attitude field and offer a different definition. Nevertheless,
their definition may have been unsuccessful to define a more stable approach of measuring
risk attitude (Weber, et al., 1997).

Smidt (1997) analyzes risk behavior within the same framework as Dyer and Sarin (1982). He
specifies intrinsic risk attitude as the relationship between two distinct factors, risk attitude
according to the utility function and the strength of preference according to the value function.

26
By studying this concept Smidt (1997) attempts to find the relevance of the intrinsic risk
attitude concept and whether there is a relationship between the expected utility function and
the value function. His finding confirms the hypothesis, that risk attitude and the strength of
preference are two distinct constructs. Moreover, the relationship is not linear but exponential
and individuals show diverse risk behavior across various situations. Overall, this study shows
that in order to assess individual risk behavior one should distinguish between choice under
uncertainty and under risk or more precisely between risk attitude and the strength of
preference (Smidts, 1997).

Weber and Bottom (1989) suggest perceived risk attitude as a definition. Under this theory,
the authors relate risk perception to choice behavior, whereas risk preference is defined as the
preference for the alternative an individual perceives as least risky. Using statistical tests the
authors were able to proof that perceived risk attitude has significant cross-situational stability
when analyzing risk behavior. Therefore, the consistent results of the Weber-Bottom study
imply, that individual’s perceived risk attitudes are reliable towards the risk averse or risk
seeking behavior for lottery choices.

Weber and Milliman (1997) apply this definition of perceived risk attitude and test it against
the relative risk attitude approach of Dyer and Sarin (1982) as well as the traditional expected
utility framework. In their study they find that the operationalization of risk preference is
more stable in specific situations than the other measurements mentioned above. The
operationalization of risk preference factors the differences in risk perception out of the risky
choice that consumers have. Therefore, they presume risk preference to be a stable personality
trait and changes in risk perception may affect situational variables. In this context, as
described by Weber and Bottom (1989), risk preference entails risk perception. Hence, risk
preference depends on the attraction or repellence of any alternative that is perceived to be
risky by an individual.

2.4.2. Findings on Risk Attitude

After assessing risk attitude in general and giving insight on the research status of the risk
attitude construct, I will attempt to review some selected findings upon this topic.

The work of Weber and Hsee (1998) examines whether individuals in four different countries
are subject to dissimilar risk preferences. The study is conducted in Poland, Germany, China
and the U.S. and analyzes in how far similar or dissimilar risk preferences depend upon risk
attitude, risk perception or on both of them. Therefore, the authors apply a framework
27
distinguishing between risk perception and the perceived risk attitude resembling an
individual’s risk preference. With this model the authors found that perceived risk attitude is
principally similar across cultures, which means that individuals are generally risk averse. The
different risk preferences are based on cultural differences in the perception of risk, which can
be ascribed to the different market structures in the various countries and the state of
economy. For this reason Germans and Americans show similar risk preferences, as the
capitalistic market structure appears to be rather stable. Chinese and Polish consumers appear
to show similar risk preferences as well considering the change from planned to market
economy at the time of the study. Overall, these results may give an indication to consumer
risk behavior considering the cultural backgrounds.

The study of Pennings et al. (2002) deals with individuals’ risk behavior in times of a crisis
concerning food products, the mad cow disease. This research decouples risk response
behavior into risk attitude, risk perception and the interaction of both and examines consumer
behavior across the three nations: Germany, Netherlands and U.S. Within in this framework
Pennings et al. (1992) find the drivers for individual risk behavior. They find that the relative
impact of risk attitude and risk perception on risk behavior depends on the individual’s
accuracy of knowing the probability to be exposed to the specific risk. Overall, the findings
show that German consumers are significantly more risk averse than the other two nations
with respect to beef consumption. These findings are in line with prior findings, stating that
Americans and Dutch belong to a similar segment when comparing the nations on Hofstede’s
uncertainty avoidance index. This result may be based on the trust Germans, Dutch and
Americans put in their government. Despite the risk perception, Germans are afraid of the risk
related to the contamination with BSE and this depends as much on risk attitude as it does on
risk perception. Hence, in Germany an elimination of risk is as effective as better
communication, and both means have to be applied to change risk behavior in times of crises.
Generally the authors conclude that strategies employed to antagonize a crisis, will only be
effective if the true reason behind the risk behavior is identified and considered.

By applying the same framework Pennings and Wansink (2004) investigate channel contract
behavior in light of risk influences. Their research yields that risk attitudes vary significantly
across different levels of channel members. Moreover, the interaction of risk attitude and risk
perception (IRAP) constitutes a strong predictor of contract behavior if combined with the
channel member’s market structure on the buying and selling side. In addition to this the
impact of IRAP on channel contract behavior strengthens when channel power increases.

28
These results imply that IRAP is important when trying to predict channel behavior in markets
and direct towards the main factors one has to consider in this.

The article “A Domain Specific Risk-attitude Scale: Measuring Risk Perceptions and Risk
Behaviors” by Weber et al. (2002) considers decision making under risk in a similar way to
Weber and Hsee (1998). Therefore, the authors analyze risk perception and the attitude
towards perceived risk, risk averse or risk seeking, in five different content domains: financial
decisions, health/safety, recreational, ethical, and social decisions. The study yields that
individuals’ risk behavior is highly domain specific. This implies that individuals are neither
risk averse across all domains nor risk seeking. Thus, risk taking depends on situational
characteristics, but as the authors found out as well on personal traits and gender. Another
challenging finding is that perceived risk attitude depends merely on the specific benefits or
losses a choice under risk may offer. Therefore, the individual may be less risk averse in the
financial content domain in case the profit is higher. Additionally, risk behavior for financial
decisions varies depending on the form: gambling/chance, investment, personal or business.
This may indicate that risk behavior in the financial context in a crisis is even harder to
predict than risk behavior towards health/safety and recreational decisions.

A study examining risk behavior in light of a financial context was done by Pennings and
Garcia (2004). This study analyzes the hedging behavior in small and medium-sized
enterprises (SMEs). However, the factors influencing derivative usage are not equal but
heterogeneous. Hence, risk exposure, risk perception, risk attitude and the decision-making
unit among others do explain the hedging behavior of SMEs to varying degrees. An
interesting finding shows that managers are influenced by their decision making unit when
deciding on the derivative usage. Although managers eventually decide the derivative usage
on their own, this outcome indicates that financial institutions should consider the decision
making unit as a whole in their marketing efforts. In addition firm size as well as risk
exposure influence the derivative behavior of managers. In a second step the authors made a
latent segmentation. This segmentation showed that managers behave heterogeneous across
segments with regard to manager and firm characteristics and derivative usage. The first
segment exhibits a significant association of derivative behavior with risk exposure, size of
the firm, influence of the decision-making unit, the manager’s risk perception and IRAP.
Compared to segment two and three this segment displays the least derivative usage. Segment
two exhibits that risk exposure, size of the firm and the level of education are associated with
a modest derivative usage and have a significant effect. Lastly, segment three shows the

29
highest derivative usage. This usage is associated significantly with the three main
components of the conceptual model, risk attitude, risk perception and IRAP. Therefore, usage
behavior can be interpreted easily and the role of risk attitude becomes clearer. Risk averse
individuals will employ more derivatives than risk seeking managers. Despite this logical
behavior, leverage, the level of education and the decision making unit affect derivative usage
as well in this segment, which appears to be the smallest of all. Overall, the study reveals that
risk behavior is driven by fundamental factors (RA, RP and IRAP) when considering segment
three. Nevertheless, smaller firms (segment one) adjust the behavior according to risk
exposure and the environment (Pennings, et al., 2004).

2.5. Risk Perception

In order to arrive at a coherent model the next section will review risk perception in general.
In a second step I will elaborate on existing literature on risk perception and risk perception in
the context of finance, especially the credit card field.

2.5.1. Risk Perception in general

Risk perception constitutes the second dimension in making decisions under risk. According
to Pennings and Wansink (2004) and Pennings et al. (2002) risk perception exhibits an
individual’s interpretation of the likelihood to be exposed to the content of the specific risk. In
this research risk perception denotes the chance of an individual to be exposed to the risk of
default when using credit cards. For example an employee at a distressed company may have
interpreted the chance to be exposed to default risks concerning credit cards very high (90%-
100%), since there was a certain risk to become unemployed. As before risk perception is
applied within the framework by Pennings et al. (2002) based on Pratt (1964) and Arrows
(1971) work.

Furthermore, it is important to note that risk perception has to be distinguished from perceived
risk in this framework. In order to truly decouple risk behavior into the three components,
Pennings et al. (2002) consider risk perception only with respect to the uncertainty
component. The perceived risk term in contrast takes two dimensions into account. Hence,
perceived risk comprises the uncertainty component as well as the seriousness of adverse
consequences (focus on potential negative outcomes). For the research at hand it is important
to define risk perception in the above mentioned way, including only the uncertainty
component (Pennings, et al., 2002).

30
In the formulas displaying the constitution of risk management behavior in the section above,
risk perception was one of the variables besides risk attitude. Thus, Pennings et al. (2002)
consider risk perception in context of the expected utility model. However, other
interpretations of risk perception do exist and will be reviewed succinct.

The study “Factors in Risk Perception” by Sjöberg (2000) asserts that many models on risk
perception fail and are able to explain a small fraction of risk perception at best. He therefore,
develops a model that strives to explain more of risk perception itself and includes more
factors. According to Sjöberg (2000), the psychometric model on risk perception appears to
be cognitive in its conception and flavor and is thus insufficient. Risk perception is illustrated
as a function of properties of the hazards, it is truly perceived. However, this is insufficient to
truly represent risk perception even in case real risk (technically measured) is considered. In a
similar way the cultural model does only consider one factor, although in a very different
context. By viewing risk perception as a reflection of the social context an individual is in,
this model is insufficient as well. Sjöberg (2000) claims that it cannot be used only one factor
to express risk perception. For that reason he explains risk perception by means of risk
attitude, as the first crucial factor, risk sensitivity, and specific fear. These three factors
indicate that risk perception is an expression of different specific values and relates to the
personal and scientific psychology in a natural way.

Pablo and Sitkin (1992) focus on risk perception and risk propensity in relation to risk
behavior, regarding them as more central to risk behavior, than was previously done in
research. The findings suggest that risk propensity is the dominating component in the model
on risk behavior and influences the actual and perceived risk characteristics of individuals.
However, I will focus on the definition of risk perception in this section. Risk perception is
described as being the “individual’s assessment of the risk inherent in the situation” (Pablo, et
al., 1996). The authors identify five variables that have direct effects on risk perception: top-
management team homogeneity, problem framing, and organizational control systems, the
social influences of the organization’s cultural risk values and leader risk orientation, as well
as problem domain familiarity. A sixth factor affecting risk perception is risk propensity. It is
the second component of the model indicating an individual’s tendency to generally take or
avoid risk. Therefore, an individual will perceive more risk in case she is subject to a risk
seeking propensity and vice versa.

Top-Management team homogeneity does affect risk perception. In homogeneous teams,

individuals will reveal risk perception in similar or extreme ways. Moreover, such teams will
31
be certain of the accuracy of these perceptions. Problem framing plays a role, as positively
framed events will be perceived to be more risky than negatively framed events when seen in
relation to a normative risk scale. This finding is in line with the prospect theory discussed in
a previous section of this chapter. Furthermore, organizational control systems do influence
risk perceptions according to their reward and punishment structure. In case focus is placed on
process control risk perception is lower. However, this is not the case if the focus is on
outcome controls. Social influences of the organization’s cultural risk values and leader risk
orientation influences individuals risk perception as the individual will perceive risks more
slowly and accurately in an organization with moderate cultural risk values. Additionally, an
individual will adjust the personal risk perception towards the leaders risk values in an
organization. The last factor influencing risk perception is the problem domain familiarity.
This factor reflects an individual’s experience in a specific situation. Hence, perceived risk
depends on past experiences of the individual and influences her risk perception. Overall the
study depicts that despite the dominant influence of risk propensity on risk behavior, risk
perception is important in determining individual risk behavior as well. As an important
explanatory variable risk perception is able to explain observed variations in individual risk
behavior, not yet clarified by risk propensity (Sitkin, et al., 1992).

2.5.2. Findings on Risk Perception

I will now proceed with a review of selected research and findings on risk perception, after I
have presented the general concepts and definitions of risk perception in the section above. In
the section on risk attitude one could already see a strong relation between risk attitude and
risk perception and some of the studies mentioned above certainly add valuable findings to
this section as well.

Mitchell and Greatorex (1993) research risk perception in the context of consumer services
among students. The authors assert that services compared to goods confront consumers with
higher risk due to the uncertain outcome. Hence, services are perceived to be risky and among
the most risky services in the study at hand was the hairdresser, hotel and the bank.
Interestingly the authors defined what risk consumers are facing in these services. Therefore,
consumers feared a financial loss the most. This is however not the case for the hairdressing
service, as consumers perceived a psychosocial risk in this service as being most severe. In
addition consumers formulated to perceive risk for a time loss and a physical loss when
purchasing services (Mitchell, et al., 1993).

32
Pennings et al. (2002) address the issue of risk perception as well. As discussed above, the
authors apply the Pratt-Arrow framework to find out what drives risk behavior of consumers
in times of crisis. They find that risk perception, as the chance to be exposed to the specific
risk, is higher in Germany than in the U.S. and the Netherlands. This finding shows that risk
behavior is different among cultures and not independent. Furthermore it is interesting to see,
that risk behavior of the Dutch is mainly driven by risk perception, whereas risk behavior of
Germans is driven by risk attitude and risk perception together. Hence, the Dutch government
can attempt to communicate consistently and effectively what measures are taken to reduce
the risk and protect consumers. In a second step of this study Pennings et al. (2002) analyze
whether consumer behavior changes if the probability of being contaminated with BSE
changes. The findings are interesting. The influence of risk attitude on beef consumption
changes, except for German consumers. Furthermore, risk perception does not rise when the
chance for contamination rises and does not influence beef consumption. Again this indicates
that correct measurements and effective communication of governments reduce the extreme
behavior by consumers (Pennings, et al., 2002).

Pennings and Garcia (2004) apply the same framework to research hedging behavior in
SMEs. As the study was explained in more detail above I will solely focus on risk perception
in this part. Risk perception is measured based on a scale consisting of a number of statements
that measure the extent to which industry members perceive a market as risky (multi-indicator
measurement). As risk attitude and risk perception are not individually significant, it is
surprising to find the IRAP to be significant for hedging behavior. Apparently, risk attitude
relates risk perception to behavior, which is indicated through IRAP. In the second part of the
study, where the authors conduct a latent segmentation, risk perception appears to be
significant in segment 1. This segment is dominated by small firms, not using hedging
techniques and making usage dependent on risk exposure and opinions of the decision making
unit. In contrast segment two, with modest derivative usage appears to be not determined by
risk perception at all. Nevertheless, segment three is denoted by significant impact of risk
perception, risk attitude and IRAP. This indicates that risk perception appears to be an
important concept when deciding on the derivative usage, as a risk averse manager who is
subject to high risk perception will use derivatives more heavily (Pennings, et al., 2004).

In their study Pablo et al. (1996) discuss the role of risk, especially risk perception and risk
propensity, with regard to decision making in acquisition processes. This research enhances
existing research on mergers and acquisitions, as it encounters the individual risk behavior of

33
managers as well. Hence, in a similar framework to Pablo and Sitkin (1992) this study reveals
that acquisition decisions are influenced by problem framing and the selection of decision
makers (individuals risk behavior). Moreover, the organizational fit of an acquisition target,
its past performance and resource requirements affect the risk perception and risk propensity
with which a manager chooses an organization (Pablo, et al., 1996).

Two studies relate risk behavior to the banking sector. Alda’s-Manzano et al. (2009) suggest
that consumer innovativeness is related to perceived risk in online banking usage. Hence the
authors find that innovative consumers perceive risk in online banking to be lower. These
findings have important implications for practitioners. As consumers accept online banking,
“leading” figures can influence other individuals and reduce their risk perception as well due
to effective communication (Alda´s-Manzano, et al., 2009). The study of Cockrill et al. (2009)
reveals that risk perception and trust are important factors to determine customer satisfaction.
Therefore, this study indicates that individuals behave sensitive in the financial context. For
this reason, research, taking into account behavioral aspects with respect to financial matters
in times of a crisis, appears to be of importance for managing globalised crisis situations.

2.6. Trust
Consumer trust in services is of great importance for marketers and has been researched
extensively within the marketing context. However, one may assume that trust of consumers
in financial services and the public system affects risk behavior in times of a financial crisis as
well. Trust as a component is of great importance to the research at hand. According to Tyler
and Stanley (2007), marketing literature provides five definitions for trust. All of these
definitions define trust as the key to manage risks, uncertainty and vulnerability associated
with the exchange of goods and services. Therefore, the definitions together employ the most
important components of trust: reliability, predictability, honesty, mutuality (each party is
equally committed to the exchange), courtesy and forbearance. Moreover, trust differs
depending on the composition of involved parties (e.g., organizations, individuals). In the
financial context trust is of major importance and central to organizational, interpersonal or
inter-organizational relationships. Tyler and Stanley (2007) find that in banks and financial
institutions bankers do not completely understand the importance of trust and have no explicit
strategies to cope with this issue. Relationships are merely enhanced by chance. For this
reason it is important that the financial sector becomes aware of the centrality of building trust
and its role for customer services, service quality and the relationship building and
maintenance (Tyler, et al., 2007).
34
Considering the economic crisis, it is important to see the issue of trust. Especially when
credit is involved, organizations and individuals build relationships that depend heavily on
trust to manage risks, rely on the counterparty and predict bad debt or future payments.
Individual consumers reacted emotional and irrational to the crisis. Hence, restoring trust and
repairing the relationships is very important. This reimbursement needs to happen as soon as
possible by financial advisors and governments, as well, to reassure customers. Advisors and
politicians need to audit their own practices and redefine risk strategies. In case of effective
communication and information consumers can restore trust to the system (Gounaris, et al.,
2009).

In addition Pennings et al. (2002) focused on trust, as being crucial when consumers deal with
crisis situations and governments need to communicate strategic coping mechanisms
(Pennings, et al., 2002). Cockrill et al., as stated in section 2.5.2., perceive trust to be of great
importance to understand consumers and improve customer services in the financial industry
(Cockrill, et al., 2009). Thus, in line with the research at hand, trust may influence risk
behavior to a great extend and will be included as a determining factor.

2.7. Socioeconomic factors

As the literature review shows not only risk attitude, risk perception and the interaction of
both components play a role in individual risk behavior. In my study I want to research as
well in what way demographic and socioeconomic factors drive risk behavior. For this reason
I will review the different variables and their prospective influence on risk behavior briefly.

2.7.1. Age, Nationality & Gender

Demographic factors influence risk behavior of individuals, as can be seen in the studies
reviewed above and the research by Barber and Odean (2001). As Pennings et al. (2002)
found out, people from different nationalities react heterogeneous in situations under risk,
specifically the BSE crisis. Nevertheless, the authors concluded that Americans and the Dutch
show similar perceptions of risk in contrast to Germans. Therefore, Americans and the Dutch
perceive the risk of being contaminated with the Creutzfeld-Jacob Disease lower and are less
concerned about eating beef. This is most likely due to mistrust in the information given
through governmental agencies (Pennings, et al., 2002). Moreover, an individual’s age
influences risk behavior. Halek and Eisenhauer (2001) find that the older a person is the lower
is the risk aversion of this person. However, as a person passes the age of 65 risk aversion
becomes stronger again. This influence of age on risk behavior was also established by Morin
35
and Suarez (1983). However, the authors found that portfolio selection behavior by
individuals is subject to uniformly increasing risk aversion with age. An interesting aspect of
the demographic factor age can be concluded from the BLC and the emotional timeline, as
mentioned in section 2.3, wherefore an inclusion is essential for academic advances.

In their study on gender overconfidence Barber and Odean (2001) revealed that men and
women show different behavior with respect to stock trading. The authors state that especially
in the financial context men are more prone to overconfidence than women, which indicates
that men trade more and thus perform worse. In addition this outcome is highly significant for
single men and single women. Moreover, highly overconfident individuals tempt to invest in
high risk portfolios. For this reason Barber and Odean (2001) analyze that women do hold
less risky portfolios than men and that there is a significant difference in their attitudes toward
risk.

Recent research by Fellner and Maciejovsky (2007) finds as well that women are more risk
averse than men. The authors find that women do not engage in as much market activity as
men. However, they mention that this finding has to be regarded with caution since secondary
determinants may influence this different behavior between men and women. Considering the
finding by Barber and Odean (2001), it appears to be reasonable, as overconfidence influences
market behavior as well. Nevertheless, as my research deals with risk behavior I would expect
that gender also influences risk behavior in the financial context of credit behavior, because
women appear to be more risk averse than men.

2.7.2. Education & Income

In line with the above stated literature review, I assume that education as well as income of an
individual will affect risk behavior. Several articles include these two factors in order to
analyze individual risk behavior and find that the educational level and the level of income
and wealth impact the risk aversion an individual demonstrates. Hartog et al. (2002) state that
risk aversion declines the higher an individual’s income and educational level are. This
finding is supported by a study on asset allocation and individual risk aversion, done by Riley
and Chow (1992). Considering credit behavior of individuals I believe that education and
income may influence an individual’s behavior substantially in this context.

36
2.8. Conclusion
The literature review above outlined that consumer behavior is a complex topic to consider.
Especially in light of the research on behavioral finance and the different market anomalies
we can observe that nowadays consumer behavior becomes ever more important. However, it
is difficult to find the one right answer to all questions consumer behavior raises. For this
reason I want to study consumer credit behavior in times of crisis. The literature review
outlines the manifold meaning of behavioral finance as a second pillar besides traditional
finance theories. It defines prospect theory, the BLC hypothesis, emotions, framing, heuristics
and the meaning of mental accounting. For the research at hand I believe all of these factors
loom large on the behavior in crisis situations and help to explain anomalies that occur in
today’s global markets.

Furthermore, the behavioral finance stream, especially the prospect theory, describes
individuals’ risk behavior accurately. Additionally, in the context of credit, consumers are
subject to mental accounting as well as heuristic biases, such as self control and framing, as
was discussed in this chapter. Hence, consumers will behave irrational in crisis situations.
Being confronted with an unstable financial system and different measures employed by the
governments, consumers face uncertainty. This implies that they have to make choices under
risk concerning their financials. In order for academics and practitioners to better predict and
understand consumer behavior in times of crisis, it is important to analyze consumer risk
behavior and define the factors affecting this behavior most. For this reason the research at
hand will primarily determine in how far risk attitude, risk perception, the interaction of both
factors and trust influence risk behavior of individuals in the context of credit cards. Several
pieces of research have shown that risk attitude and risk perception as well as trust are
important factors in determining consumer behavior under risk. Although, definitions may
vary, a deeper understanding of what drives consumer behavior is crucial for predictive
purposes and the development of strategies and policies in times of crisis. Further, I analyze
whether demographic factors and socioeconomic factors drive risk attitude or risk perception
and to what extent these factors influence risk behavior. In line with prior research age,
nationality, gender, education, income and trust will be considered in the analysis, to study
consumer reactions to the financial crisis.

37
3. Conceptual Model

3.1. Introduction
The following section will present the conceptual model in order to conduct this research. I
will relate the risk behavior of individuals to credit card usage by following closely the
framework to Pennings et al. (2002) and Pennings and Garcia (2004). Therefore, risk behavior
is decoupled into the separate components of RA, RP and IRAP. This analysis may reveal
what drives the decision of individuals to reduce, or not, the transaction volume by means of
credit cards. Additionally, I will investigate the influence of several other socioeconomic
factors on individual risk behavior and find out whether these factors drive risk attitude, risk
perception or the interaction of both. This chapter will first explain and develop a conceptual
model, after which I will deduce the hypotheses and finally provide a graphical representation
of the model itself.

3.2. Conceptual Model

The whole framework is based on Pratt (1964) and Arrow (1971) and is in line with the model
of Pennings et al. (2002) who decouple risk behavior into the three components RA, RP and
IRAP. In order to see the effect of RA, RP and IRAP the authors define risk management to be
reflected in a risk premium 𝜋. This risk premium is a function of risk attitude, where r is the
risk aversion, the specific base situation, where W is the base wealth, and risk perception, with
a mean of 𝜀 and a 𝜎 2 variance of source of additional wealth ε. An individual managing risk is
then considered to be indifferent between the exposure to risk, being involved in the risky
situation, or the mean value minus the risk premium. Expressing this relationship in form of
the expected utility model reveals the following equation as described in the literature review
above:

𝐸𝑈 𝑊 + 𝜀 = 𝑈(𝑊 𝜀𝑓 𝜀 𝑑𝜀 − 𝜋)

Rewriting this formula and including the Pratt-Arrow coefficient of absolute risk aversion the
1
risk premium equals 𝜋 = 𝜎 2 𝑟(𝑊). Hence, Pratt and Arrow reveal that risk management
2

behavior of individuals is dependent on the three components risk attitude, risk perception and
the product between them. According to Pennings et al. (2002) decoupling risk behavior into
RA and RP offers a robust segment-level conceptualization and hence a good prediction of
individual risk behavior. Traditional concepts studying perceived risk focus on the negative
outcomes of risky situations. As I desire to analyze risk behavior under uncertainty in general,

38
the framework of Pennings et al. (2002) satisfies this necessity and does not focus solely on
negative outcomes. In order to apply this framework, I conduct a survey to collect data and
will then continue with the analysis.

As an extension to the model by Pennings et al. (2002) trust is included as an independent

variable. Trust is the key to manage risk, uncertainty and vulnerability that is associated with
the exchange of goods and services. Pennings et al. (2002) stated that trust in governmental
actions impacts risk attitude or risk perception. Therefore, I add trust as a separate factor in
order to see the true impact of trust on consumer behavior.

3.3. Hypotheses
As this research analyzes individual risk behavior in the financial context of credit card
transactions, I develop hypotheses to specify my research questions. This way it is possible to
test the assumptions in the above mentioned statistical model and draw conclusions from the
results.

RA, as discussed above, reflects an individual’s predisposition to the content of a risky

situation. Hence, an individual who shows high risk attitude will be highly risk averse. For the
research at hand this indicates that a highly risk averse consumer will refuse to take on high
credit. The financial crisis induces consumers to be ever more suspicious of the financial
institutions and take care of private wealth sensibly. As the crisis showed, anyone can face
financial distress and unemployment due to sudden insolvencies and a recession. For this
reason, credit card transaction volume should be lower if a consumer refuses to take risks. In
previous literature Pennings et al. (2002), Weber et al. (1997) and Weber and Hsee (1998)
find evidence that RA significantly influences consumer behavior. According to Pennings et al
(2002). German behavior is driven generally by RA as well as RP and American behavior is
driven only by risk attitude in a food related context. Moreover, Weber and Hsee found that
cultural differences play a role when considering perceived risk attitude and perception of
risk. Perceived risk attitude does influence behavior, but is generally the same across culture,
whereas the perception of risk may differ due to different market structures etc. In another
article by Weber and Milliman (1997) the authors identified a significant relation between risk
attitude and specific domains, situational characteristics (financial, social etc.). For this reason
I expect that risk attitude influences credit card transaction volume, leading to the following
hypothesis:

39
H1: An individual who is highly risk averse will significantly reduce the credit card
transaction volume in times of crisis.

RP describes an individual’s assessment of the chance to be exposed to a specific risk. As risk

perception becomes higher, consumers consider the chance to be influenced by a specific risk
to be higher and may become less risk seeking. Any worker for example may feel exposed to
the risk of unemployment and bad debt or a self-employed may be confronted with insolvency
and financial distress. In this case an individual may perceive the risk to be exposed to risks
associated with taking on credit to be higher. With regard to previous literature, Pennings et
al. (2002) identified a significant relation between the reduction of beef consumption by
German consumers as well as Dutch consumers. Furthermore, several studies identified that
risk perception is an important factor when consumers are confronted with services (Mitchell,
et al., 1993). In case of financial services such as online banking, the influence of RP is
especially high and determines consumer satisfaction to a great extent as well (Alda´s-
Manzano, et al., 2009). Therefore, I arrive at the following hypothesis:

H2: An individual subject to high risk perception will significantly reduce the credit card
transaction volume in times of crisis.

Expecting that both risk attitude and risk perception influence consumer risk behavior one can
also expect that the interaction of both factors affects risk behavior. Studies by Pennings et al.
show, that the interaction of RA and RP indeed has a significant impact on consumer
behavior. IRAP is a major factor in the assessment of hedging behavior by management in
SMEs. Moreover, in the study “A note on modeling consumer reactions to a crisis: The case
of the mad cow disease” by Pennings et al. (2002) the affect of IRAP is significant for
American consumers. Although it does not prove to be significant for German and Dutch
consumers the interaction factor may determine consumer behavior, leading to the following
hypothesis:

H3: An individual who is highly risk averse and perceives more risk will significantly reduce
the credit card transaction volume in times of crisis.

A fourth factor identified as important for consumer behavior is trust. Several pieces of
research stated that trust is an important factor determining risk behavior. Pennings et al.
(2002) found that the trust consumers have in governmental actions in times of crisis
influences their behavior significantly. Furthermore, trust is a central factor to build
relationships in the financial sector and understand the customers and their behavior (Tyler, et

40
al., 2007). A similar conclusion is drawn by Cockrill et al. (2009), stating that trust is
important in establishing customer relationships. With regard to the banking sector Alda’s-
Manzano et al. (2009) identify that trust significantly affects customer satisfaction and
consumer behavior. For these reasons I identified the following hypothesis:

H4: An individual who has less trust in the government and financial institutions will
significantly reduce credit card transaction volume in times of crisis.

Besides the four components mentioned above, I expect that demographic and socioeconomic
factors affect risk behavior of consumers. For this reason I will analyze the influence of
several socioeconomic variables upon both RA and RP. Therefore, the following hypotheses
were developed. In order to save space each hypothesis includes a statement on risk attitude
as well as risk perception, which will be handled individually in the analysis.
Age has an impact on consumer behavior. The older a consumer is, the higher will be his risk
aversion (Morin, et al., 1983). In addition, according to the BLC, individuals may be faced
with either regret or pride at the end of the emotional time line. Hence, the older a person gets,
the less time she has to invest her income. Moreover, consumption is not based upon current
income but depends on a constant percentage of the present value of the individuals’ life
income. This indicates that age plays a significant role, as income becomes less in later stages
of a person’s life. Thus, I arrive at the following hypothesis:

H5: As an individual becomes older she will be more risk averse and perceive higher risk.

According to previous literature, gender affects risk behavior of individuals. The study “Boys
will be Boys: Gender overconfidence and common stock investment” by Barber and Odean
(2001) clearly states that women are more risk averse than men and invest in less risky
portfolios. The difference in risk attitudes towards risk is significantly different among
women and men. This result is supported by Fellner and Maciejovsky (2007). In their study
on market behavior in asset markets, women show higher risk aversion than men. However,
the authors mention a limitation that secondary determinants may influence this relationship
as well. Hence, the research at hand may show whether gender differences are in fact the
driver of risk behavior, indicating the following hypothesis:

H6: A female individual will be significantly more risk averse and will perceive significantly
higher risk than a male individual.

As was seen in the literature review, several studies reveal a substantial relationship between
nationality and risk behavior. Due to cultural and political differences individuals across

41
different nations behave differently, especially in times of crisis. According to
Pennings et al. (2002) this heterogeneous behavior was observed in their study on a food
crisis. Dutch and American consumers exhibited different risk behavior than German
consumers. The authors ascribed this finding to the trust consumers have in information from
governments and governmental actions in times of crisis. In addition, Weber and Hsee (1998)
found out that risk attitude is similar across nations whereas the perception of risk differs
across nations. They ascribe this result to the market structures of the respective country.
Chinese market structures are very different from American or German structure, which may
induce diverse risk behavior among individuals. Moreover, Weber and Milliman (1997)
specifically determined a relation between cultural difference and risk attitude an individual
holds. Therefore, I arrive at the following hypothesis:

H7: A German individual will be significantly more risk averse and will perceive significantly
higher risk.

The level of education and an individual’s income influence risk behavior. This was found in
two studies by Hartog et al. (2002) and Riley and Chow (1992). The authors determined that
risk aversion is significantly influenced by the level of income and education an individual
holds. Therefore, consumers with a high level of education are able to better assess riskiness.
Moreover, the wealthier an individual is, the lower is her risk aversion and perception due to
the better opportunity of compensating a loss more easily. In line with this previous research
the following hypotheses are phrased:

H8: An individual with higher education will be significantly more risk averse and will
perceive significantly higher risk.

H9: An individual with higher income will be significantly less risk averse and will perceive
significantly less risk

As was discussed above and in the literature review, trust is an important factor when
analyzing individual risk behavior. Therefore, trust is considered in the two OLS regressions
as well in order to determine the impact of this variable. Thus, the hypothesis reads as
follows:

H10: An individual who has less trust in the government and financial institutions will be
significantly more risk averse and perceive significantly higher risk.

42
3.4. Graphical Demonstration of the conceptual Model

The above formulated relationships and hypotheses can be graphically displayed as follows:
On the right consumer risk behavior is displayed as the decision to reduce credit card
transaction volume during the crisis. This variable depends on the four factors RA, RP, IRAP
and trust and describes the first four hypotheses of this research. The second part of this
framework, is displayed on the left side of the graphical demonstration. The seven
demographic and socioeconomic variables are depicted variables affecting RA and RP,
whereas trust represents a variable included in both analyses.

Figure 1 Individual’s decision to reduce credit card transaction volume in times of crisis

43
4. Research Design
4.1. Introduction
This chapter deals with the research design specifications. After reviewing the existing
literature and developing the conceptual model for my core variables and other influencing
variables the research design clarifies the procedures for operationalization. Therefore, I first
define the decision context of my study and proceed with the design and method on how to
collect data on risk attitude, risk perception, demographics and socioeconomic variables.

4.2. Decision Context

In order to analyze consumer credit behavior in times of crisis, I conduct my study in the
context of the current economic crisis. To better understand the crisis and credit behavior by
means of credit cards, I will elaborate on these aspects briefly before explaining the research
design in detail.

4.2.1. The economic crisis

In order to understand the context and development of the financial crisis better, I shortly
review the past happenings and draw connections to the risks and the credit card industry. The
global economic crisis is one of the worst crises after the great depression in the 1930s.
Accompanied by failures of key businesses, declining consumer wealth and governments
under pressure to support the economy financially, the world economy has slowed down and
found itself in a recession. Due to the immense internationalization and coherence between
globally operating corporations, it was possible that the US housing bubble collapsing in 2006
affected the whole world and led to the global crisis.

Reasons for the crisis are manifold. Deregulation of financial markets, innovation of financial
products, a growing housing bubble, easy accessible credit, overindebtedness among
consumers and incorrect pricing of the true risk are some of the reasons that lead to the global
collapse. The citizens are the ones to suffer from mistakes of politicians and greedy business
people. Trust in the governmental system was lost and it is not clear whether stronger
regulation can restore this trust.

In Germany the government tried to point some way with governmental aid for Opel as one of
the biggest employers in Germany. However, discussions are still going on and financial aid
is not in sight. This example illustrates the difficulty behind governmental action and
individual behavior. One part of the public perceives financial aid to be the best solution,

44
however, as other businesses are disregarded the public perceives the government to act in an
unfair way and a correct solution appears to be impossible in any case. Moreover,
governmental decisions and governmental aid needs to be accompanied by stronger
regulation. More regulation indicates, as well, that governments face higher costs and free
markets can be jeopardized. Especially regulations on prohibiting leverage or allowing for
limited leverage are enormous and constrain market actions (Statman, 2009).

Nevertheless, current credit card statistics indicate that individuals fear the risks of
overindebtedness more and more. Additionally, the use of debit cards becomes more common
among consumers. At the moment the most common type of payment in Germany is still cash
when considering the payment habits of consumers. However, debit cards are becoming more
widely accepted. The intrinsic meaning of credit cards may be different in Germany, as
German consumers seldom purchase goods or services on credit. They prefer credit lines
similar to debit cards. For this reason the popularity of debit cards is increasing. To some
degree this is also due to the easy handling and relatively high safety standards (Deutsche
Bundesbank, 2009). This trend from check writing and cash payment can be seen as well in
the U.S. Consumers are switching to more convenient payment methods. However, due to the
crisis, consumers felt higher risks in using credit cards and taking on loans. Hence, debit cards
became ever more popular to use. In combination with suitable credit lines for the customers,
debit cards increase their attractiveness even more (Benton, et al., 2007).

4.3. Research design

The research design can be defined in many ways. It poses a blueprint for the collection,
measurement and analysis of data. Therefore, the research design is an activity- and time
based plan assisting in answering the research question. Moreover, it guides the selection of
sources and types of information and defines the relationship between the different variables
by drawing a framework and outlining the procedures.

Research designs can be manifold and depend on several factors, like data collection, purpose,
scope of the study and research environment. Hence, depending on the nature and the
contribution of the research, the study is either of exploratory, descriptive, or causal nature. In
an exploratory study the researcher lacks the clear definition of the problems to be met during
the study. For this reason, the researcher then seeks to define the problems and develops a
concept by exploring the general topic. The descriptive study in contrast exhibits a clear
structure with exact hypotheses and research problems. This way, descriptive studies estimate

45
the proportions of a population and reveal relationships between the research variables.
Finally, causal studies deal with the concept of cause. They disclose the cause- and effect-
relationship in between two variables or more. This type of design is closely related to the
descriptive study design. Yet, it specifies the relationship in a better and more precise way
(Blumberg, et al., 2005).

For the study at hand the research design appears to be a descriptive design. The study is build
upon precise hypotheses and develops a relationship between different variables. More
precisely I want to develop a relationship between consumer credit behavior and risk
perception, risk attitude, the interaction of both as well as demographic and socioeconomic
variables.

4.4. Data Collection

In order to implement the research design I need to collect data. There are two types of data
and I define each in the following. Secondary data is data provided to a researcher through
former studies done by other researchers. In this study I exploited secondary literature in order
to review the existing research in the respective field and to build the conceptual model as
well as developing the hypotheses.

Primary data is the original type of data a researcher has collected in order to study a specific
field of interest. In the study at hand the primary data is collected via a personal interviews
with consumers. This data collection serves to relate the selected variables to consumer credit
behavior and provide first insight into this research field.

4.5. Sample Design

Before gathering the primary data the sample design has to be specified. Sampling is done in
order to increase the accuracy off results, increase availability of population elements, and for
a greater speed of data-collection. Hence, only some of the population elements are selected
to do the survey and not the whole population. Therefore, I specify the relevant population,
the sampling frame, the sampling technique as well as the sample size needed.

4.5.1. Relevant sample population

The relevant sample population is apparent from the research problem I posed above. In order
to research the credit behavior of consumers, all consumers will be part of my relevant sample
population (Blumberg, et al., 2005). The research will be conducted mainly among German
consumers. From theory and practice we know that German consumers behave differently and
46
are highly risk averse. Pennings et al. (2002) as well as Weber and Hsee (1998) found a
significant difference in risk behavior between various nationalities.

4.5.2. Sampling frame

The sampling frame closely depends on the population chosen and defines the list of elements
from which the sample is actually drawn. However, this list can be inaccurate in practice and
hard to define. In the study at hand, the population list consists of all consumers, who take
part in the interviews and consume commodities (Blumberg, et al., 2005).

4.5.3. Sampling technique

When sampling one can distinguish between two different representation techniques,
depending on whether members of the sample are selected by means of probability sampling
or non-probability sampling. Probability sampling takes the concept of random selection as a
basis. This technique ensures that each population element has a known non-zero chance of
being selected to be in the sample. The non-probability sampling in contrast is subjective and
arbitrary. In that case the researcher has the chance to choose the element herself randomly.
Thus probability sampling provides higher precision. Nevertheless, the study at hand applies
non-probability sampling, as I select the population elements taking part in the study on a
random basis and not on the basis of a controlled selection procedure (Blumberg, et al., 2005).

Moreover a researcher may distinguish between two forms of element selection, restricted
selection and unrestricted selection. Unrestricted selection implies that each sample element is
drawn individually from the population, whereas all other forms of sampling are restricted
sampling selection methods. As I select each sample element individually from the
population, the study at hand employs an unrestricted sample selection method (Blumberg, et
al., 2005). Therefore, I interview different consumers randomly selected from my
environment at different places and different times.

4.5.4. Sample Size

The sample size depends on various factors and should encounter some basic principles. Thus,
the researcher must consider the dispersion, or variance, of the sample when deciding on the
size. A larger sample is needed for higher precision when the variance within the population
is wide. Moreover, precision is always greater in case of a larger sample. In addition, a sample

47
has to be larger in case of a greater number of subgroups of interest within the sample
(Blumberg, et al., 2005).

Based on the conceptual model and the discussion above, the size of my sample needs to
consist of at least 150 respondents to my study, in order to still ensure sufficient precision.
However, I want to note that this sample size is restricted by time and costs issues and the
scope of this Master thesis.

4.6. Questionnaire Design

As I mentioned above, I conduct interviews in order to gather primary data. After having
specified my sample design I now specify the questionnaire design. This section defines how
the questionnaire is set up, how I collect data and presents the content of the questionnaire.

4.6.1. Questionnaire Type

There exist four different types of questionnaires: structured undisguised questionnaires,

structured disguised questionnaires, unstructured undisguised questionnaires and unstructured
disguised questionnaires. In order to collect the primary data, I use a structured undisguised
questionnaire. This type of questionnaire is standardized in that questions are listed in a
prearranged order and all elements receive the same questionnaire. Moreover, respondents are
acquainted on the purpose of the research and therefore, know the purpose of the questions
asked.

4.6.2. Data-collection approach

The method of data collection for the research at hand is the face-to-face interview method.
Therefore, I interviewed consumers and recorded the responses to collect my primary data.
This communication method offers several advantages, as it is a two-way conversation
initiated by me. Respondents can therefore, ask me in case a question is unclear. Moreover, it
is possible for me, to support respondents and as well to receive direct feedback and gather
the respondents’ behavior during the survey directly. Respondents were asked at various
places: work environment, private environment and public places.

4.6.3. Questionnaire Content

In this section I discuss the content of the questionnaire developed for the interviews. The
questionnaire was developed in English and German. Both can be seen in the Appendix 1.
The questionnaire shortly introduces the respondent to the topic and informs her about the
48
time needed and the data confidentiality. In order to avoid confusion different definitions for
payment methods are given (in line with the literature review and discovered pitfalls).

The first section then asks respondents about their credit card usage as well the risk attitudes,
risk perception and trust in governmental action and the financial system. The first question is
about whether the consumer did reduce transactions made by means of credit cards and if yes
by how much. Moreover, respondents are asked whether they switched to other payment
methods due to the financial crisis. In a second step respondents are asked to reveal
information upon their risk behavior. This part of section one is identical to the questionnaire
developed by Pennings et al. (2002) and adapted to the current context of the financial crisis.
The questions are measured on a 9-point Likert scale. This scaling is the most common type
of summated rating scale. Summated rating scales express respondents opinions based on a
favorable or unfavorable attitude towards the specific question. The scale produces interval
data and is useful to compare an individual’s opinion or score to that of a well defined sample
group. Furthermore, it expresses the respondent’s intensity of her feelings with this type of
scaling. Thus, it is the most appropriate scaling in order to define individuals’ RA and RP
(Blumberg, et al., 2005). The measure of RA is build from the following items: 1) For me
overindebtedness through paying with the credit/debit card is worth the risk (“Agree” to
“Disagree”), 2) I am …”Not willing to accept” to “Willing to accept” The risk of
overindebtedness when using credit/debit cards in times of crisis, 3) I accept the consequences
of credit/debit card overindebtedness in times of crisis (“Agree” to “Disagree”). Whereas the
measure of RP consists of the following items: 1) Due to overindebtedness, for me paying
with the credit/debit card during the crisis is …”Risky” to “Not Risky”, 2) Due to
overindebtedness, when using my credit/debit card in times of crisis, I am exposed to...”High
Risk” to “Low Risk”, 3) I think credit/debit card overindebtedness in times of crisis is risky
(“Agree” to “Disagree”).

The measure of trust is scaled on a 9-point Likert scale as well for the same reasons as above.
The questions for this measure are derived from a behavioral study by De Wulf et al. (2001)
and adapted to my study context. The items measuring trust are the following: 1) I think my
home country’s government has …”Not much Competence” to “Much Competence” to limit
financial risk issues in times of crisis, 2) Financial institutions in Germany give me a feeling
of trust regarding credit card usage in times of crisis (“Agree” to “Disagree”), 3) Financial
institutions supply trustworthy information regarding the danger of personal credit/debit card
overindebtedness in times of crisis (“Agree” to “Disagree”).

49
In the second section, the respondent is asked to provide some background information. This
background information serves to find out about the demographic variables age, gender and
nationality as well as the socioeconomic variables education, income and information. The
questions are mainly of the type simple category scale or multiple choice response scale.
These scales produce nominal data and are first of all specifically applicable to demographic
questions and questions to which the respondent is sought to select one or more alternatives
from different categories (Blumberg, et al., 2005).

4.6.4. Pre-test

Before conducting the final interviews a pre-test needs to be done in order to refine the
questionnaire and improve it. Two different ways of pre-testing exist according to Blumberg
et al. (2005). The first way is researcher pre-testing. This pre-test is done in the initial stages
to structure the questionnaire in a better way. For the study at hand the researcher pre-testing
was conducted by my supervisor. The second way to pre-test is participant pretesting. In this
case the questionnaire is tested by sample participants or participant surrogates. This method
is effective in order to identify ambiguous or unclear questions and correct for these. By
determining the approach taken for the pre-test the researcher can affect the pre-test as well.
Hence, a pre-test can be either collaborative or non-collaborative. A collaborative pre-test
implies, that participants are aware of the preliminary version. Thus, participants can critically
question the content and help to enhance the questionnaire. Under the non-collaborative
method, participants are not aware of the fact that the survey is a pre-test. This way the setting
is more realistic and interviewers can practice in a realistic setting. For the study at hand I
decided to interview 15 sample participants collaboratively. After adapting some minor
ambiguities regarding most of the times wording specifications the final questionnaire was
released to collect data.

50
5. Results and Discussion

5.1. Introduction
In the following chapter the data analysis as well as the statistical tests are introduced and
performed in order to test the hypotheses and discuss the overall problem statement of this
thesis. To perform the analyses the statistical package for social sciences (SPSS 17.0) was
used. After focusing on the descriptive statistics, I employ a factor analysis to determine the
four variables RA, RP, IRAP and Trust. Moreover, I will assess the construct reliability and
validity in order to continue with the regression models for testing the hypotheses. In the final
section of this chapter a short conclusion on the main findings is given.

5.2. Data analysis

5.2.1. Descriptive Statistics

As mentioned before data was collected by means of face-to-face interviews. For the study at
hand I was able to collect a total of 180 responses. Considering the descriptive statistics on the
collected data, the sample can be regarded as representative of the whole population. In the
following, graphs on the respective distributions are shown in order to assess the collected
data more accurately. As shown in figure 2 95 (52.8%) out of the total number of respondents
were female and 85 (47.2%) male. Considering the age, the youngest respondent was 19 years
old whereas the oldest respondent was 69 years old. The average of 36.54 years as well as
figure 3 show that the age distribution is skewed to the left, representing a young sample.
Concerning nationality the sample mainly consists of Germans (90%). The rest are various
nationalities (American, French, Dutch, etc). However, it was not possible to collect enough
non-German responses for a reliable subsample analysis, wherefore I tested this with a
dummy variable on the German population. In addition to the demographic characteristics, it
is interesting to consider educational backgrounds as well as income and the family status
(figure 4). Most respondents hold a degree of a University for Applied Sciences or a
University degree, indicating a high educational background for this sample. However, for the
statistical regression analysis those two degrees were grouped together, representing a
university degree. Interesting to see is that the income distribution is quite normal, with 30.6%
of the respondents earning € 2,000 - € 2,999. This stable distribution may be explained by the
employment statistic. About 60% indicated employee as profession. Moreover, about 10% are
students and about 10% indicated to be a public servant (Beamter) as their profession. With a
percentage of five, self-employed respondents pose a minority. Analyzing the family status, it
51
is interesting to see that 73.3% of the respondents do not have kids and 44.4% live in a
household with two persons. This is interesting as studies from governments indicate that this
is a well known development, when analyzing the population in Germany. These descriptive
statistics indicate that the sample is representative for the working population and the
statistical analysis will follow.

Figure 2 Gender Distribution

Figure 3 Age Distribution

52
 Figure 4 Educational Distribution

5.2.2. Knowledge and Usage of credit cards and the crisis

Before analyzing the data, I first discuss the information and usage of credit cards in times of
crisis. As can be seen in table 1 most consumers did not indicate that they reduced their
purchases made by means of credit cards during the crisis or switched to another payment
method. This is interesting when analyzing the data with the logistic regression in a later
section. Moreover, the data reveals that most respondents were aware of the risk of
overindebtedness when using credit cards before participating in the study.

Table 1 Questions on Credit Card Usage and Knowledge

Questions on credit card usage and knowledge Yes (%) No(%)

Have you reduced your purchases made with
credit/debit cards during the financial crisis because of 5 95
fear for overindebtedness?
Have you switched to other payment methods during
the financial crisis to decrease new indebtedness? 4,4 95,6

Were you aware of the risk of overindebtedness? 81,7 18,3

Interesting to see is the confidence in personal knowledge on the different payment methods.
Respondents indicated that they perceive their knowledge on payment methods to be quite
high. Simultaneously, respondents answered that they are not concerned to use their credit
card in times of crisis. When considering the distribution of payment method preference,
about 25% of the respondents are neutral on whether they prefer payment by means of credit

53
card or any other payment method. The distribution to the tails is almost equal with 10%
answering they prefer or do not prefer payment with credit cards.

Figure 5 Knowledge on Payment Methods

Figure 6 Concerns on Credit Card Usage

54
 Figure 7 Payment Preference

In addition, respondents were asked to specify where they retrieve information on financial
matters in times of crisis. Interesting is the relatively low demand for information from
financial institutions. Respondents indicate that most information is derived from Media
(Internet, TV, etc) and newspapers. This may indicate that respondents are less trusting of
financial institutions, since the crisis affected these institutions. In order to confirm such
expectations and the hypotheses, the following section will start with the statistical analysis.

Table 2 Sources of Information for consumers

From which sources do you derive information on Yes (%) No(%)

financial Matters in times of crisis?
Financial Institutions 45,6 54,4
Media 70,6 29,4
Newspapers 67,8 32,2
Friends, Family and /or Relatives 40,6 59,4
Others 7,8 92,2

5.2.3. Factor Analysis and Data Validity

A factor analysis serves to reduce the amount of data a researcher is dealing with. By
extracting a group of highly intercorrelated items/variables, latent variables are formed.
Hence, the new construct best reflects the different items. The most common form of factor
analysis is the exploratory analysis. However, I will use a confirmatory factor analysis (CFA)
in order to evaluate each item and its contribution to each construct. Moreover, the CFA
shows how well the overall model measures the construct into the relationships between

55
independent and dependent variables. For the factor analysis itself a principal component
analysis is most suitable. This analysis is run in SPSS and summarizes the different items into
constructs.

In order to run a factor analysis several criteria have to be considered and met: linearity,
substantial correlations and item quantity as well as sample size. Linearity is of importance as
the factor analysis seeks variables that are uncorrelated (orthogonal) in the end. Therefore, a
linear combination is identified by extracting the maximum variance from the items and
building a factor. A second factor is then extracted by combining the items of the remaining
maximum variance. This process is repeated until the predetermined amount of factors is
reached or until no more factors can be extracted from the remaining variance (Bühner, 2003).

Substantial correlation is mandatory for the analysis, as a factor analysis is only possible in
case of intercorrelation between items. These correlations indicate the strength of the
relationship among the different items and are displayed in the correlation matrix. SPSS
reveals the determinant of this matrix. The determinant should be unequal to zero, as this
would indicate the matrix to be singular (invertible). However, a determinant of one indicates
that the items have no correlation at all. Therefore, a determinant between zero and one is
suitable to do a factor analysis (Bühner, 2003).

One approach to quantify the number of correlations that can be detected in the correlation
matrix is the Kaiser-Meyer-Olkin (KMO) coefficient. The KMO coefficient measures the
sample adequacy and indicates whether the data is suitable for a factor analysis. The
following ranges give an indication of the coefficient value: below 0.50 indicates that data is
incompatible for a factor analysis; although 0.50 to 0.59 values are bad, a factor analysis is
possible; better are values above 0.60 those are considered moderate, whereas values higher
than 0.80 are considered to be good and very good for a factor analysis (Bühner, 2003).

The second test that can be used to identify substantial correlation is the Bartlett’s test of
sphericity. This test is done to check whether the correlation matrix is an identity matrix,
meaning that all correlations are equal to zero. In order to use a factor analysis one should be
able to reject the null hypothesis (correlation matrix is an identity matrix). As is the case for
many statistical tests of significance, the Bartlett’s test of sphericity benefits from a large
sample size. In case of a large sample, it is easier to reject the null hypothesis (Bühner, 2003).

The last criterion to consider for a factor analysis is the sample size and item quantity. It is
important to specify prior to the collection of data how many factors a researcher expects. In
56
order to build a reliable construct at least three items are necessary, but more are always
better. Hence, a researcher has to consider that each construct requires at least three questions,
to arrive at a reliable variable. Moreover, the item’s reliability can be checked via
communalities. Although the communality is difficult to assess for one item in one
measurement, the communality gives an indication on reliability. Communality measures the
part of variance that all items explain of one construct. Usually communality should exceed
0.60 as the higher the item’s communality is the better an item will represent the construct.
Concerning sample size, the following guidelines apply to run a factor analysis. A minimum
of 60 responses is said to be necessary in order to run a factor analysis. Whereas 100
responses are considered sufficient, 200 responses are considered to be fair and everything
above 300 responses is good or even better (Bühner, 2003).

I will now review the criteria by testing the collected data and doing a factor analysis in SPSS.
Regarding the linearity criterion, adequate linear relationships between items should in fact
exist. The questionnaire was developed in order to arrive at certain constructs for the analysis.
Therefore, I expect that linear relationships are observable for the RA, RP and Trust
constructs, which will be further confirmed in the factor analysis. When considering the
required substantial correlation, a factor analysis is suitable. The determinant given by the
correlation matrix of 0.203 is between zero and one, a desired value suitable for a factor
analysis. In order to quantify the detected correlations and the true suitability for a factor
analysis, I apply the KMO test. With an overall KMO coefficient of 0.682 the sample
adequacy is moderate. According to Bühner (2003) the value indicates that a factor analysis is
still suitable. Individual sample adequacy measurements indicate a similar picture. For all
items the coefficients are between 0.566 and 0.816, indicating some low measures, yet
suitable data for a factor analysis, as the required minimum of 0.50 is met.

In addition to the KMO coefficient the Bartlett’s test for sphericity may support the suitability
for a factor analysis. This test indicates that the null hypothesis of all correlations being equal
to zero can be rejected at a significance level of one percent. Hence, the sample is adequate
for a factor analysis when considering the required substantial correlation.

The last criteria to be met are the item reliability and the sample size. With a sample size of
180 observations, the sample size is more than sufficient and considered as good. Moreover,
for the three factors expected, each one is build of three items. Thus, the minimum of three
required items for each factor is satisfied as well. Concerning the communalities the sample
adequacy appears to be somewhat inappropriate. Although five items have values above 0.6.
57
and 0.70, four items appear to have values below 0.60. This indicates that the items do not
explain a lot of the variance of the factor extracted. Nevertheless, I will apply a factor
analysis, considering the other criteria and the purpose of this study. In addition, an
explanation will follow in the discussion later as those discrepancies may be induced by
behavioral aspects and certain behavior noticed during interviews.

In the following the actual factor analysis will be done and analyzed. There are several ways
to do a factor analysis, but as said before I will apply the most common technique, a principal
component analysis (PCA). The PCA is a mathematical factor model and is especially
suitable when the explanatory variables are closely related (e.g. near multicollinearity). In the
case at hand the PCA then extracts factors equal to the number of items from the data to build
new uncorrelated variables (RA, RP and Trust). Since this technique is purely mathematical,
factors will be extracted in descending order of importance (principal factors). Therefore, the
first extracted factors will explain most of the variance in the data set. As the other factors
will explain less and less of variance, the least important factors will be discarded in the end
(Bühner, 2003).

To determine the extracted factors, several criteria are considered. The first criterion is the
Kaiser-Guttmann Criterion or Kaiser criterion. This criterion considers the eigenvalues of one
factor. In case the eigenvalue is larger than one the factor explains more of the variance of the
data set than a standard variable. For this reason all factors with eigenvalues larger than one
are considered to be meaningful for the analysis. The eigenvalue itself indicates how much
variance the factor explains of all items and therefore declares the importance of the factor.
Another criterion to consider when analyzing the factors extracted is the graphical scree test
after Cattell. This plot shows the eigenvalues plotted against the factors graphically. By
searching for a clear cut or breaking point in the line one can determine the number of
extracted factors. After the breaking point the line will be flat and the following factors will
explain less and less of the variance, wherefore, they can be discarded. Although the scree test
is a well established method for researches it is criticized for the subjective character (Bühner,
2003).

For the data set at hand I considered both methods the Kaiser criterion and the scree test. The
Kaiser criterion extracts three factors. Thus, the test identifies three factors for which the
eigenvalues are larger than one (eigenvalues: 2,717, 1,403 and 1,055). According to the scree
test three factors are extracted until the line breaks and flattens horizontally.

58
To better interpret the factor structures the rotation methods are applied. These rotations do
not alter the item positions, but the way the items are explained by factors with the intention
to achieve the best possible explanation through the different factors. Such a depiction of
items is represented through an oblique simple structure. This means that loadings on one
factor are very high and low on other factors. Factor loadings are depicted in the factor matrix
and represent the correlations between the individual item and the factor extracted. If the
structure is not simple an interpretation is difficult. For that reason a varimax rotation is
applied. The varimax rotation produces high factor loadings on one factor and low factor
loadings on all other factors, alleviating the interpretation of factor loadings.

As can be seen in table 3 the factor loadings before rotation differ from the factor loadings
after varimax rotation. According to Hair et al. (2006) factor loadings of 0.6 and higher are
considered high, whereas loadings below 0.4 are considered as low. A minimum for factor
loadings of 0.5 is however significant. In addition, one always needs to interpret factor
loadings with regard to theory and not arbitrary because of a guideline. The factor loadings
indicate the extraction of three factors. For the construct of risk attitude the items show clear
loadings after varimax rotation with two values above 0.7 and one value close to 0.6. The
construct of risk perception is also quite clear. Two items load highly on RP whereas one item
(question on whether credit card indebtedness is considered to be risky) only loads with 0.352
on the factor. However, when conducting the interview this item was perceived in a different
way among German participants. German consumers do not commonly purchase goods on
credit, wherefore they do not perceive the risk to be exposed to overindebtedness high. This
may explain part of the contradiction and will be discussed in the last chapter (6.4.). The third
factor shows as well high loading on two items, above 0.7. Yet one item loads higher on
factor one after varimax rotation. Nevertheless, I will consider the third construct, Trust, to
consist of the last three extracted components, as indicated by the analysis without rotation.

Despite these minor limitations, I consider the loadings and outcomes from the factor analysis
satisfying. The constructs I expected and wanted to confirm are in fact determined by the
factor analysis. Before continuing with the regressions to detect relationships, data reliability
and data validity will be assessed and checked in order to provide accurate analyses.

59
Table 3 Factor Loadings before and after Varimax Rotation

Rotated Component Matrixa Component Matrix

Component Component
Construct 1 2 3 1 2 3
Accept consequences of
indebtedness ,871 ,028 ,083 ,727 ,364 -,326
Willing to accept risk/not Willing
RA ,707 ,127 ,034 ,534 ,386 -,287
to accept risk
Payment by credit cards is worth
the risk ,594 -,178 ,154 ,616 ,080 -,148

Credit card indebtedness is risky -,515 ,352 -,113 -,603 ,115 ,159

RP ,058 ,815 ,002 -,273 ,770 ,025

Exposed to high/low Risk

Payment by credit card is risky -,172 ,811 -,056 -,482 ,672 ,080
Financial institutions give feeling
of trust ,491 -,292 ,370 ,465 ,013 ,656
Financial institutions provide
Trust ,076 -,130 ,790 ,465 ,013 ,656
trustworthy Info
Government has competence/no
competence ,151 ,087 ,763 ,427 ,237 ,612
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 4 iterations.

5.2.4. Data Reliability

Data reliability deals with the degree of measurement accuracy and depicts the proportion of
variance of the true data from the variance of the observed data. This would mean that in case
of a reliability (𝑟𝑡𝑡 ) of 0.5, the test data would be explained to 50% by the systematic variance
and to 50% by the measurement error, indicating an unsatisfying reliability of data. However,
in order to circumvent the measurement inaccuracy from this test, various tests can be
applied. For the present research the internal consistency of the data needs to be estimated to
provide accurate analysis results. Internal consistency measures the relation between several
items as they represent a factor. Measurements for internal consistency are based upon item
dispersion as well as correlations and covariances and similar to the factor analysis and are an
additional data validation. One standard measurement for internal consistency is Cronbach’s
Alpha. Cronbach’s Alpha will be higher the stronger intercorrelations between several items
are. However, if item correlations are negative the alpha will be reduced (Bühner, 2003).

When analyzing inter-item correlations, correlations between 0.148 and 0.489 are detected.
Although 0.148 indicates low correlation that reduces the Cronbach Alpha, average inter-item
correlations are above 0.3 (a minimum guideline) for each construct. As can be seen in table 4
the alphas are 0.553 for the factor RP, 0.647 for the factor RA and 0.506 for the factor Trust.
These values appear to be rather poor, since values with 0.60 are considered to be acceptable
for exploratory purposes, whereas, values above 0.70 are acceptable for confirmatory
purposes and values above 0.80 are good for confirmatory purposes. Using this analysis for

60
confirmatory purposes the data appears to lack internal consistency. Even when considering
the column “Cronbach’s Alpha if the item was deleted”, which SPSS provides, values are at
0.60 only. Nevertheless, this result supports my assumption on diverse behavioral aspects in
conjunction with this study. I elaborate on this issue in the last chapter. Since the values are
yet somewhat acceptable, being close to 0.60, I will continue with the analysis despite weak
internal consistency and weak statistical data reliability.

Table 4 Data Reliability

Cronbach's Alpha Cronbach's

ITEMS
if Item Deleted Alpha
FACTOR

Payment by credit card is risky ,261

Exposed to high/low Risk ,483 ,553 RP

Credit card indebtedness is risky ,607

Payment by credit cards is worth

,665
the risk

Willing to accept risk/not Willing ,653 ,647 RA

Accept consequences of
,263
indebtedness
Financial institutions give feeling of ,435
trust
Financial institutions provide ,357
trustworthy Info
,506 Trust
Government has competence/no ,428
competence

5.3. Statistical analysis and Results

5.3.1. Logistic Regression

After assessing the data validity by means of a factor analysis as well as assessing the data
reliability with Cronbach’s Alpha, the main analysis to answer the overall research question
of this thesis: What drives consumer purchasing behavior on credit in times of crisis? will be
done. I will employ a binary logistic regression in order to see, whether risk behavior does
affect the transaction volume by means of credit cards. Furthermore, I will use ordinary least
squares (OLS) regressions to see which factors influence RA and RP.

The binary logistic regression serves to define whether individual consumers did reduce their
transaction volume by means of credit cards during the crisis. Moreover, the core objective in
this analysis is to determine the factors that affect the probability of reducing purchases made
by credit cards. Hence, the dependent variable will be binary, describing that individuals did
reduce transaction volume by means of credit cards (=0) or not (=1).

61
An OLS regression would be inappropriate in this context as the dependent variable and
hence the model is not linear. Thus, it is not possible to use the general goodness of fit
measure, R squared. A linear probability model (LPM) is inappropriate as well. Although the
LPM is a model to deal with binary dependent variables in the simplest way, the model
assumes that the probability of the dependent variable is linearly related to the independent
variables.

A logistic regression in contrast transforms the regression model to a model in which the
fitted values are bounded within an interval (0,1). Therefore, it overcomes the problem to
produce negative estimated probabilities for the dependent variable or probabilities greater
than one. The fitted logistic model then appears as an s-shaped curve. The asymptotes to this
model are at 0 and 1, hence the probabilities will never actually reach either 0 or 1. The
intended regression equation is as follows (Brooks, 2008).

(1) 𝑇𝑉 0 1 = 𝛼0 + 𝛽1 𝑅𝐴 + 𝛽2 𝑅𝑃 + 𝛽3 𝐼𝑅𝐴𝑃 + 𝛽4 𝑇𝑅𝑈𝑆𝑇 + 𝜀𝑖

This equation explains the transaction volume with risk attitude, risk perception and the
interaction of both. The regression equation reveals the relationship between the binary
dependent variable 𝑇𝑉 0 1 , transaction volume, and the independent variables, RA, RP,
IRAP, and Trust. As discussed above the dependent variable 𝑇𝑉 0 1 displays whether an
individual consumer did reduce credit card transaction volume (=0) or not (=1).

By estimating the chance of a certain event to occur, the logistic regression transforms the
dependent variable into a logistic variable. This means that the natural log is taken of the
chance that the dependent variable occurs or not. Only after this transformation one can apply
the maximum likelihood estimation and run the regression. When interpreting a logistic
regression output in SPSS the outcomes appear similar to those of an OLS regression.
However, it needs to be considered that changes in the log odds of the dependent variable are
calculated in a logistic regression. In contrast, an OLS regression calculates the changes in the
dependent variable directly. Nevertheless, coefficients for the variables correspond to
coefficients in an OLS regression and can be interpreted in the same way. Additionally, the
logistic regression is subject to lighter restrictions concerning the normality assumption,
homoscedasticity and linearity.

One of the major differences between OLS regressions and logistic regressions to consider
when looking at the model fit is the R-squared. For logistic regressions an analog to the OLS
R-squared is not provided. The R-squared measures how well a sample regression fits to the

62
data (goodness of fit). Hence, it attempts to measure the fraction of the variance explained by
the independent variables. However, for a binary variable, as in this research, the variance is
most likely lower due to the dependency on the frequency distribution. The variance will be
highest in case the dichotomous variable splits in half. In case of a lopsided split the variance
will be quite low. For this reason it is not possible to compare models with differing
distributions of the dependent variable as well as logistic R-squared measures and OLS R-
squared measures. To overcome this problem, researchers attempted to find an equivalent to
measure the effect size. As such the pseudo-R-squared measures are more of a measure for
strength of association than goodness of fit. Therefore, they tempt to be misleading and
inaccurate.

In order to evaluate the model at hand, an R-squared measure is not of major importance.
However, I shortly discuss the given effect size measures. SPSS provides the -2 Log
likelihood, the Cox & Snell R-squared and the Nagelkerke R-squared as effect size measures.
In addition, the output provides the “correctly classified choices” percentage. This measure
can be regarded as the accurate and suitable measure for effect size in the case at hand and is
discussed extensively later. The -2 Log Likelihood (-2LL) is the log likelihood ratio. This
ratio specifies whether the unexplained variance in the dependent variable is significant.
Therefore, it indicates the chance of a correct prediction of the dependent variable from the
observed value of the independent variables. As a sole number the -2LL is not informative for
a goodness of it test. Generally, one can say that the -2LL statistic will decrease as the model
fit becomes better. However, the major advantage is to use the -2LL for the likelihood ratio
test to compare two models. The 30.626 -2LL for the data at hand can therefore not be
assessed on a meaningful basis. Considering the Cox & Snell R-squared of 0.203 is difficult
to interpret. The measure tempts to base the calculation on the log likelihood of the final
model against the log likelihood of the baseline model and tries to imitate the interpretation a
multiple R-squared offers. The Nagelkerke R-squared attempts to enhance the Cox & Snell R-
squared by assuring a value between zero and one. The prior measure will most likely have a
maximum below one instead of one. Thus, the Nagelkerke R-squared will yield a higher
value, which will still be lower than an OLS R-squared. Table 5 shows that Nagelkerke’s R-
squared is indeed higher at 0.619. However, due to the weak validity of pseudo R-squares
these statistics are considered with great caution and I focus more on the classification table.

63
Table 5 Logistic Model Summary Model Fit

Model Summary
Cox & Snell R Nagelkerke R
Model -2 Log likelihood Square Square
1 30,626a ,203 ,619
a. Estimation terminated at iteration number 9 because parameter estimates changed
by less than ,001.

The classification table shown below indicates the correct and incorrect predictions made with
the logistic regression. The two columns show the predicted estimates for the dependent
variable, whereas the first two rows illustrate the actual values of the dependent variable. The
last row shows the overall percentage of correctly identified cases and thus measures the
model’s effect size. If the data was subject to homoscedasticity the percentage correct would
be roughly equal for both cases. However, this is not the case and with an overall percentage
of 97.2% correctly identified cases the model appears to fit well. When comparing this rate to
the rate in the general model in step 0 of the SPSS regression of 95.0%, one can see the
improvement. Now the difference between step 0 and step 1 is the inclusion of either only the
intercept (step 0) or the predictors (step1).

Table 6 Classification Table – Goodness of Fit

Classification Tablea
Predicted
Credit Card Transaction
Volume Percentage
Observed Yes No Correct
Step 0 Credit Card TV Yes 0 9 ,0
No 0 171 100,0
Overall Percentage 95,0
Step 1 Credit Card TV Yes 6 3 66,7
No 2 169 98,8
Overall Percentage 97,2
a. The cut value is ,500

Although the classification coefficients offer a better effect size measure than pseudo R-
squares, some limitations should be noted. When determining the classification coefficient,
either one (yes) or zero (no), the table does not show how close to one the predicted values
are. With a cut value of 0.50 predicted values closer to this cut value are worse than prediction
close to one. As the table does not indicate whether the values were closer to one or to the cut
value, one cannot truly assess the effect size measure. In addition, a comparison to other
models is inappropriate, as the classification table can offer very different values for different
samples. Nevertheless, with over 97% correctly classified choices the model at hand appears
to fit well and RA, RP, IRAP and Trust explain the behavior of individuals to a certain degree.

64
After determining the effect size for the model, I continue with the logistic regression and test
the hypotheses. The regression output shows the following results.

Table 7 Logistic Regression Results – Regression Coefficients

Variables in the Equation

B S.E. Wald df Sig. Exp(B)
Step 1 RA -,502 1,170 ,184 1 ,668 ,605
RP 2,336 ,809 8,334 1 ,004 10,339
IRAP ,473 ,837 ,319 1 ,572 1,605
Trust -1,051 ,643 2,673 1 ,102 ,349
Constant 5,758 1,283 20,137 1 ,000 316,656

Table 7 displays the independent variable coefficients (B), the standard error (S.E.), the
significance of the respective variable and the odds factor (Exp(B)). This odds factor serves
for better interpretation of results. As the model is a logistic regression, the coefficients are in
log-odds units. These units indicate by what amount the dependent variable increases or
decreases in case of a one unit increase in the independent variable, holding all other variables
constant. The odd factor is created by exponentiating the log odd coefficient. The outcome
reveals by what factor the independent variable increases or decreases the log odds of the
dependent variable.

H1: An individual who is highly risk averse will significantly reduce the credit card
transaction volume in times of crisis.

According to table 7 RA does not drive the reduction of credit card transaction volume. The
regression coefficient is insignificant. Evidently, individuals subject to high risk aversion will
not reduce credit card transaction volume during the crisis. Hence, hypothesis 1 is not
supported. This indicates that individuals do not relate credit card usage to high risks and do
not seem to think overindebtedness to be a high risk for themselves. Considering previous
research, this result contrasts the results from Pennings et al. (2002), Weber and Milliman
(1997) and Weber and Hsee (1998). In the context of food related safety issues (contaminated
meat) Pennings et al. (2002) found that generally German behavior is driven by risk attitude
as well as risk perception and that American behavior is driven by risk attitude. Weber and
Hsee find that risk attitude depends highly on the domain as well as on cultural differences
that play a role according to Weber and Milliman (1997). Therefore, considering the high
proportion of German respondents one might expect different results for other nationalities.
However, such an analysis is beyond the scope of this thesis.

65
H2: An individual subject to high risk perception will significantly reduce the credit card
transaction volume in times of crisis.

RP significantly influences the credit card transaction volume by individuals. The odds factor
states that by the variable risk perception the odds to not reduce credit card transaction
volume during the crisis is increased by a factor of 10.339. This in turn means that individuals
will not reduce purchases made with credit cards due to their risk perception as the odds
factor is above one and the p-value is significant at the 1% level. These results are however
somewhat inconsistent with the results on risk behavior in crisis situations as analyzed by
Pennings et al. (2002). In relation to a food crisis Pennings et al. (2002) found that German
consumer behavior to reduce beef consumption is determined by risk perception as well as
risk attitude. Moreover, Dutch consumer behavior is determined only by risk perception. In
another study Mitchell and Greatorex (1993) found that services are particularly dependent
upon risk perception. This is a similar result to Alda’s-Manzano’s et al. (2009) study stating
that consumer behavior for services such as online banking are determined heavily by risk
perception, with more innovative people perceiving less risk. Lastly, risk perception and trust
were identified as factors determining consumer satisfaction to a great extent.

H3: An individual who is highly risk averse and perceives more risk will significantly reduce
the credit card transaction volume in times of crisis.

The coefficient IRAP is not significant and hypothesis 3 cannot be supported. Therefore, the
reduction of credit card transaction volume is not driven by the interaction of risk attitude and
risk perception. This contradicts prior results by Pennings and Garcia (2004). In their study
the interaction between risk attitude and risk perception depicted a major factor when
assessing hedging behavior by management in SMEs. The three segments that were identified
in the study showed that especially in segment three IRAP exhibits a fundamental factor in
determining hedging behavior. However, IRAP was found to be insignificant for Dutch as
well as German consumers in the study by Pennings et al. (2002). This outcome is in line with
the result at hand. For American consumers Pennings et al. (2002) found IRAP to be a
significant factor in determining consumer behavior, supporting the hypothesis of
heterogeneity among different nations.

H4: An individual who has less trust in the government and financial institutions will
significantly reduce credit card transaction volume in times of crisis.

The coefficient trust is not significant and hypothesis 4 cannot be supported. This means that
the reduction of credit card transaction volume is not driven by the trust consumers have in
66
financial institutions and governmental actions. This finding is inconsistent with the
deposition by Pennings et al. (2002). They found that trust is of importance in crisis
situations. Specifically, their results showed that consumer behavior is influenced by the trust
they have in the government itself and its actions to deal with the crisis. In addition, Tyler and
Stanley (2007) support the importance of trust in their study. They define trust as a central
factor to build relationships in financial contexts and understand customers and their behavior.
This is similar to the conclusion Cockrill et al. (2009) state about trust and customer
relationships. Furthermore, in “The role of consumer innovativeness and perceived risk in
online banking usage” by Alda’s-Manzano et al. (2009) trust is identified as a major factor
determining consumer satisfaction and thus consumer behavior.

5.3.2. OLS Regressions on RA and RP

In order to define how demographic and socioeconomic factors drive RA and RP, OLS
regressions will be run in a second step. These regressions will show whether secondary
factors such as age, nationality, gender, education, or income influence either RA or RP.
Again trust will be included as an independent variable to see whether trust determines RA
and RP to a significant extent. OLS regressions are the simplest form to detect a relationship
between a dependent (given) variable and one or more other variables (independent). In
economics, regression analyses are one of the most important tools to explain movements in
the dependent variable by movements in independent variables. For this reason I consider an
OLS regression to be the most appropriate analysis tool to detect hypothesized relationships.
Considering the literature review the above mentioned variables are of major interest to the
study, wherefore I will include them as independent variables in the OLS regressions.
Hence, the regression equations will be as follows (Brooks, 2008):

(1) 𝑅𝐴 = 𝛼0 + 𝛽1 𝐴𝐺𝐸 + 𝛽2 𝑁𝐴𝑇 + 𝛽3 𝐺𝐸𝑁 + 𝛽4 𝐸𝐷𝑈 + 𝛽5 𝐼𝑁𝐶 + 𝛽6 𝑇𝑅𝑈𝑆𝑇

(2) 𝑅𝑃 = 𝛼0 + 𝛽1 𝐴𝐺𝐸 + 𝛽2 𝑁𝐴𝑇 + 𝛽3 𝐺𝐸𝑁 + 𝛽4 𝐸𝐷𝑈 + 𝛽5 𝐼𝑁𝐶 + 𝛽6 𝑇𝑅𝑈𝑆𝑇
These equations explain the two factors RA and RP as dependent variables with the variables
discussed in the conceptual model “age (AGE), nationality (NAT), gender (GEN), education
(EDU), income (INC) and trust (TRUST)” as independent variables.

Before interpreting the regressions the residuals were checked for the OLS assumptions. By
testing for normality as well as examining the scatterplot for homoscedasticity and linearity, it
was ensured that none of the assumptions is violated. Therefore, a regression analysis is

67
feasible without any transformation and adjustment made to the data. Nevertheless, when
considering the model fit, table 8 indicates that the regression model for RP appears to be
inappropriate. The model for RA has an adjusted R-squared of 0.172 indicating that the
variables in the model account for 17.2% of the variations in the dependent variable, RA.
Although this percentage is quite low, it is of value to be considered moderate for a study in
the field of behavioral sciences. The negative adjusted R-squared value for the dependent
variable RP, however, indicates that the model fits the data very poorly. Due to many
marginal insignificant variables in the model a negative adjusted R-squared is possible in
regression models.

Table 8 OLS Regressions – Model Fit

Model Summary
Adjusted R Std. Error of
Model R R Square Square the Estimate Durbin-Watson
RA a ,201 ,173 ,90933900 1,965
,448
RP a ,022 -,012 1,00589710 1,625
,149
a. Predictors: (Constant), Trust, Gender, Nationality, Education, Age, Income

Table 9 OLS Regression Results – Regression Coefficients

Coefficients
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
(Constant) -2,218 ,508 -4,364 ,000
Age ,037 ,007 ,427 5,139 ,000
Gender -,029 ,146 -,014 -,196 ,845
RA Nationality ,460 ,230 ,138 2,002 ,047
Income ,209 ,107 ,138 1,957 ,052
Education -,014 ,065 -,017 -,210 ,834
Trust -,126 ,071 -,126 -1,760 ,080
(Constant) -,273 ,562 -,485 ,629
Age -,007 ,008 -,082 -,886 ,377
Gender ,150 ,161 ,075 ,933 ,352
RP Nationality ,325 ,254 ,098 1,278 ,203
Income -,062 ,118 -,041 -,523 ,602
Education ,060 ,072 ,075 ,837 ,404
Trust ,006 ,079 ,006 ,076 ,940

Table 9 shows the results of the regression analysis. As can be seen the results for RP as a
dependent variable support the previously calculated adjusted R-squared. None of the chosen
independent variables is able to explain variations in RP. However, all hypotheses will be
discussed below. First, hypothesis 5 will be analyzed.

H5: As an individual becomes older she will be more risk averse and perceive higher risk.

68
The coefficient for age appears to be positive and significant at the 1% level for the regression
on RA. As expected the result indicates that the older a person gets the higher will be his risk
aversion. Risk attitude is driven significantly by the variable age and hypothesis 5 cannot be
rejected. This is in line with previous findings by Morin and Suarez (1983), stating that risk
aversion will increase with age. Moreover, the result may explain the BLC hypothesis.
Depending on the age and income a person’s risk attitude varies over life. Yet, in the
regression on RP the coefficient age is highly insignificant. Thus, age does not determine risk
perception and hypothesis 5 is not supported in this regression.

H6: A female individual will be significantly more risk averse and will perceive significantly
higher risk than a male individual.

Interestingly, the coefficient for gender is highly insignificant in both regression analyses on
RA and RP. Therefore, hypothesis 6 is not supported and gender drives neither risk attitude
nor risk perception. Considering some previous research done upon gender differences, the
studies by Barber and Odean (2001) as well as Fellner and Maciejovsky (2007) appear to
contrast the results. Barber and Odean state that women are less risk seeking when investing
in stocks and find a significance difference in attitudes towards risk. This behavior is
supported by the study of Fellner and Maciejovsky, stating as well that women are subject to
higher risk aversion. However, the authors mention that secondary determinants may
influence this identified relationship, wherefore, results must be treated with caution.

H7: A German individual will be significantly more risk averse and will perceive significantly
higher risk.

Regarding the regression on RA, the coefficient for nationality is positive and significant at
the 5% level. The variable is used as a dummy variable which distinguishes between German
respondents and those of other nationalities. As the coefficient is positive the outcome is
opposite to the hypothesized outcome, which underlines the different usage of credit cards by
Germans. Hence, a German individual will be significantly less risk averse. Nevertheless, the
result indicates that nationality is a major factor in determining risk attitude of an individual
and hypothesis 7 is rejected in this case. However, nationality appears to be insignificant in
the regression on RP. Hence, nationality does not drive risk perception and the hypothesis is
not supported for this regression. The result makes sense in that risk attitude depends on an
individual’s general predisposition that is influenced by environmental circumstances.
Therefore, it complies with the finding by Pennings et al. (2002). They detected that behavior
among Dutch and Americans differs strongly to the behavior of Germans. The authors
69
ascribed this difference to the trust consumers have in information from governments. Yet, the
present result shows that nationality itself may play a role in risk behavior as trust is regarded
as a separate factor.

H8: An individual with higher education will be significantly more risk averse and will
perceive significantly higher risk.

H9: An individual with higher income will be significantly less risk averse and will perceive
significantly less risk.

The coefficients for education and income are insignificant for both regressions. Therefore,
neither hypothesis 8 nor hypothesis 9 can be supported for the dependent variables RA and
RP. This finding contrasts the results of Hartog et al. (2002) and Riley and Chow (1992), who
determined that risk aversion falls as income and educational level are higher. This relation
maybe due to the wealth and lower risk for threatening situations as well as the knowledge of
probability theory and a more realistic assessment of risk. The contrasting result may partly
appear due to a sample selection bias, which will be discussed in more detail in the limitations
section in chapter six.

H10: An individual who has less trust in the government and financial institutions will be
significantly more risk averse and perceive significantly higher risk.

Trust was included as a variable in the logistic regression as well as in the OLS regression.
However, as can be seen in table 9 trust is insignificant in the in the both regressions on RA
and RP. This indicates that trust does not determine risk perception of individuals. Hypothesis
10 cannot be supported by this finding. Previous research shows opposing results as was
discussed before. Several studies find that trust is a major factor in determining consumer
behavior. Wherefore, a significant influence would have been expected for both dependent
variables.

5.4. Conclusion
The statistical section served to analyze the data within two steps. The first step gave an
indication on the true behavior during the crisis and serves to answer the main research
question. The second step serves to identify the drivers behind the two major factors.

In order to analyze the question on whether consumers reduced their credit card transaction
volume during the crisis, a binary logistic regression was run. The independent variables
included in the regression are RA, RP, IRAP and Trust, as those factors are assumed to
determine the decision on transaction volume reduction. A summary of the main findings is
70
displayed in table 10 below. Only the factor RP significantly influences consumer behavior.
RA, IRAP and Trust do not influence the dependent variable. Interesting to see is that the
coefficient for RP is positive, which means that risk perception will drive consumers to not
reduce credit card transaction volume. Nevertheless, this is not surprising when considering
the interviews and consumers’ reaction towards the questions. German respondents do not
spend the money they do not have. Hence, for most items those consumers are not willing to
purchase on credit. Evidently, the chance to be exposed to the risk of indebtedness is low and
consumers perceive their chance of personal bankruptcy as low or not existent. In addition,
the survey shows that only 2% of the respondents indicated to have reduced credit card
transaction volume, showing no change in behavior.

The logistic regression served to get a good picture of which specific risk component is
affecting consumer behavior in a crisis and whether the crisis is affecting credit card usage
behavior. However, it is as well interesting to see which factors drive the two main risk
components.

Table 10 Logistic Regression- Hypotheses Overview

Dependent Independent Hypothesized Influence Hypothesis

variable Variable Influence
RA - - insignificant
RP - + rejected
TV (1=No)/(0=Yes) IRAP
- + insignificant
Trust - - insignificant

In order to see the effect of demographic and socioeconomic factors on risk attitude and risk
perception OLS regressions were run. Table 11 summarizes the main findings of this analysis
and gives insight into risk behavior. Evidently, no factor was identified to significantly affect
RP, wherefore this discussion will focus on the first regression on RA.

71
Table 11 OLS Regressions – Hypotheses Overview

Dependent Independent Hypothesized

variable Variable Sign Sign Hypothesis
Age + + not rejected
Gender - - insignificant
Nationality - + rejected
RA
Income - + insignificant
Education + + insignificant
Trust - - insignificant
Age + - insignificant
Gender - + insignificant
Nationality - + insignificant
RP
Income - + insignificant
Education + - insignificant
Trust - + insignificant

The factors age and nationality significantly determine an individual’s risk attitude. The older
a consumer is the higher will be her risk aversion. Furthermore, the nationality plays a role
due to cultural differences and different behavioral patterns, Germans pursue lower risk
aversion than other nationalities. This finding is opposite to the expected relationship, but in
light of the different usage behavior of credit cards it does make sense. Therefore, nationality
does influence consumer behavior. After having a good overview of the results, the next
chapter will focus on interpretation as well as theoretical and practical contributions of this
research. In addition, I will consider some limitations and future research before giving some
concluding remarks.

72
6. Conclusion
This last chapter will serve to complete this research. The financial crisis has directed
attention to the financial sector. Regulations appear to be insufficient and consumers are
irritated and disappointed by the turmoil and financial advisors as well as governmental
actions. Although governments and financial institutions tried to apply measurements to
reduce the risk for consumers and market participants, an individual’s behavior may not
reflect this. Individual behavior in a crisis situation often differs from the true level of risk the
consumer faces. In order for advisors, businesses and governments to interpret these reactions
and behaviors in a correct manner to implement appropriate measures, consumer behavior
needs to be studied. This way, reactions in crisis situations can be predicted to reduce damage.

6.1. Main Findings

This research attempted to identify the main drivers behind consumer behavior in times of
crisis. In order to approach the main problem statement “What drives credit card usage of
consumers in times of crisis?” a model was developed. This model decoupled risk behavior
into risk attitude and risk perception. Furthermore, the interaction effect of those components
was considered as a separate factor as well as the factor trust, which consumers have in
financial institutions and governmental actions. In line with previous literature these four
factors were identified to potentially affect an individual’s decision to reduce credit card
transaction volume in a crisis. In a second step, the analysis served to define the drivers of the
two components RA and RP.

Important to note is, that on the basis of the interviews with respondents, one critical issue
was revealed. German respondents use credit cards in a very different way to other nations.
During the sample collection most respondents noted that they use a credit card in form of a
debit card. Therefore, they do not actually take on credit, as money is withdrawn directly from
their account. Respondents indicated that they would only go on credit to purchase large
things (own house, etc), but to not use their credit card for that purpose. In the U.S., credit
cards are mostly used in the real sense of credit cards, with the option to actually take on a
credit. This dissimilar usage may indicate that the German consumers represent a “saving
nation”: They will not spend money they do not own and they will only purchase “luxury
goods” in case of regular income and a safe employment position. An attitude like this is quite
exceptional in the setting of this research. Therefore, the results do reflect this particular
behavior. In addition, the low change in behavior (2% indicated a reduction in credit card
transaction volume) may indicate a risk averse attitude towards credit card usage for German
73
respondents. Hence, as indebtedness by means of credit cards is low, a change in behavior is
not induced by a crisis. This matter of fact may explain as well the weak reliability of the risk
perception construct.

As analyzed in chapter 5 only risk perception was identified to significantly affect consumer
behavior. This means that only the chance of an individual to be exposed to the risk of using
credit cards and is driving consumer behavior. The result that risk perception does not drive
consumers to reduce credit card transaction volume is however surprising and inconsistent
with previous literature. Nevertheless, considering the particular behavior of German
consumers, the result may not appear as peculiar as before. In case German consumers do not
perceive the risk of overindebtedness through credit cards as high, they will not reduce the
transaction volume. In addition, such behavior may even indicate, that the chances of being
exposed to such risk is much lower for German consumers. Therefore, German consumers
exhibit a special risk behavior with respect to the specific context and crisis.

The analysis shows that by effectively communicating information about crisis situations and
financial matters to consumers, financial institutions and governments are able to change
consumer behavior. This way consumers’ concerns are effectively abolished and the true level
of risk is communicated.

In addition, by defining the drivers of risk attitude and risk perception more precise
measurements could be implemented to avoid confusion and damage. The analysis
determined that only risk attitude is significantly determined by the age of an individual and
the nationality. The regression model for risk perception appeared to fit poorly and therefore
displayed no significant relationships. Nevertheless, the influence of age on risk perception
was positive. This result is in line with prior research and supports the hypothesis of older
people being more risk averse. Furthermore, individuals show different behavior across
different nationalities. Overall, the results from the second step indicate that measurements
implemented in crisis situations should as well consider the age and nationality of individuals
to effectively resolve the crisis.

6.2. Theoretical Contribution

After discussing the main findings, I will present the theoretical contribution of this research.
This research enhances the theory and discussion on consumer behavior in times of crisis.
Furthermore, it addresses an issue of public interest in the financial crisis, providing important
implications and directions for future research. Special attention may be directed towards the

74
controversial discussion between traditional and behavioral finance. The results of the study
indicate that irrational (behavioral) factors are important and influence consumers to a great
extent in times of crisis. Especially the decoupling of risk behavior into risk attitude and risk
perception serves a better understanding of consumer behavior in times of crisis. Risk
perception determines consumer credit behavior. This supports the research by Pennings et al.
(2002). However, the present study offers an extension to the model by including the factor
trust. This was indicated by Pennings et al. (2002) to be of importance but not tested yet.
Moreover, with the second part in the analysis, light is shed upon the factors that drive risk
behavior. The finding support previous results. Age affects risk behavior significantly as
found by Morin and Suarez (1983) already. Additionally nationality significantly determines
risk attitude. This was indicated by Pennings et al. (2002), nevertheless the focus on German
consumers offers a more precise picture on German risk behavior and encourages future
research on the cultural differences and their impact on consumer risk behavior. The inclusion
of trust as a separate factor is novel and enhances research on consumer behavior in the
financial as well as in the marketing field.

6.3. Practical Contribution

From the practical perspective the model offers an opportunity to predict consumer behavior
and valuable information for marketers, politicians and managers of financial products. The
research provides implications on whether better communication of the procedures’ and
products’ risks and advantages are needed in case risk perception weighs heavier, or if risk
has to be eliminated in case risk attitude weighs heavier. In that case only strict regulation can
be applied to control indebtedness of consumers and high transparency of financial products
needs to be employed to ensure thorough understanding. In the third case where the
interaction of both variables weighs heaviest, a hybrid solution is the best alternative to satisfy
consumers and adjust to their needs. Overall, the model may help marketers to tailor credit
card offers to their clients and considers various aspects to segment consumers. In addition,
the research analyzes consumers’ reactions in a crisis and hence, serves to develop concepts
for such critical situations.

The finding that risk perception is determining consumer credit behavior indicates that public
policy makers need to communicate the true level of risk for consumer effectively and
consistently. This can either be done through media or other public sources. However, the
most important way is via financial institutions. Those need to show transparency and inform
consumers properly and in direct ways, which may be supervised by the governments in order

75
to ensure consumer safety. Only by doing that trusting relationships can be build and
consumers will rely on given information. The recent crisis caused a lot of costs because
consumers felt betrayed and got betrayed by financial institutions. The recent crisis may be
due to ineffective and fraudulent communication of the financial sector to governments and
consumers. By analyzing consumer behavior in detail such problems can be avoided.
Furthermore, the analysis yields insight that consumer irrationality can be detected to some
extent. This helps to put the correct measurements and policies in place.

The study reveals that practitioners can achieve this even better by considering and
understanding the impact of consumer age and nationality. Older citizens behave differently
than young consumers. Sources of information are different and practitioners need to
understand this. They should adjust their procedures to reach everyone in a crisis and avoid
confusion causing high costs. In this case older consumers may need more personal advice
and more presence from professionals in order to trust and understand the products they buy.
Younger consumers instead feel acquainted with the internet and are able to search for
information themselves. However, they need to be ensured that internet safety is high and as
well need to be aware of the risks and the advantages of each product. In this sense the
transparency needs to be high for both segments. Additionally, in a globally operating world,
it is important to understand the cultural difference across nations and incorporate this into the
measurements taken to fight a crisis. German consumers are very different in their behavior
compared to other nationalities, politicians and financial institutions need to incorporate this
and provide even better information and communication in turbulent times. Hence, more
information should be communicated to the consumer. That way not only the worst news
reach a consumer but also good news and a consumer may be able to get a more objective
picture of the whole crisis situation. This might as well avoid bank runs, as was seen at the
peak of the crisis.
By consciously recognizing the drivers behind consumer behavior and applying suitable
measurements high costs can be avoided and damage from a crisis can be reduced. However,
practitioners and academics need to understand this, work together and develop appropriate
strategies considering all important factors.

6.4. Limitations and Future Research

In most cases a research is subject to several limitations because of suboptimal conditions.
Cost and time constraints are among the most common limitations for Master Theses.
However, there are numerous other limitations. For the research at hand the most considerable

76
limitations, reducing the applicability and generalization of the results, will be discussed now.
Some limitations concern the data. Therefore, the data in this research is subject to sample
selection bias. All respondents are employed or self-employed, wherefore, the sample
represents only a part of the working population. However, due to limitations for credit card
holders in Germany most providers only offer cards to individuals with a constant and steady
income on the account. Therefore, the sample may provide a good selection of individuals
owning a credit card. In addition, due to the locality and a European based university the
research focuses on German and European consumers. Despite a large sample, the collected
data could be enhanced by a larger diversity of respondents and result in a more representative
sample, leading to a better generalization of the results.

Due to the focus on German consumers, a special behavior was noticed during the collection
of data. As mentioned before German consumers from the working population appear to
budget their money conservatively. Respondents commonly do not purchase items on credit.
This supports the fact that Germany is a “saving nation”. Important to note in this context is
the weak risk perception construct. The items for this construct reflected personal as well as
the general perception to be exposed to risk. Due to the low usage of credit cards, respondents
perceived that risk perception was low for the personal risk of indebtedness. However, in
general respondents noted that they perceive the risk of indebtedness to be high. This behavior
shows inconsistency within the construct itself, but reflects the attitude of respondents very
well. Therefore, I expect that the study results in a different outcome when more respondents
from various nationalities are interviewed.

Furthermore, German respondents denoted that they use credit cards on a different basis.
Either they use a non-revolving credit card or a debit card. In both cases the consumer does
not take on a real credit. This usage is yet quite uncommon in the U.S. and indicates a very
different usage behavior, making a generalization of results problematical.

Additionally, I want to mention a possible flaw in the construct of trust. The questions
consider trust in financial institutions and governments. Considering the study context I
regarded financial institutions and governments as synonyms, which may be interpreted
differently by some respondents. Therefore, the construct may be subject to inconsistencies,
which was detected in the aftermath.

For these reasons several research opportunities exist for future research. An extension of the
database and a survey across various nations offers one of the main openings for future

77
research and might yield interesting insights into cultural differences on risk behavior.
Moreover, a different model may yield interesting insights. The double hurdle model first
defined by Cragg in 1971 describes a two stage analysis of data. Cragg assumes that
consumers make two decisions when facing a product purchase. The first stage constitutes the
decision to purchase a product, whereas the second stage displays how much of a product a
consumer will purchase. Therefore, two hurdles have to be passed in order to observe a
positive expenditure (Cragg, 1971). An analysis on this basis reveals an even better
understanding of consumer behavior in a crisis and enhances research in this field.

6.5. Concluding Remarks

In summary, this research offers insights on a new topic in consumer research. The financial
context is especially interesting and supports the importance of behavioral finance, when
analyzing market movements. The problem statement “What drives credit card usage of
consumers in times of crisis?” as well as the research questions were discussed extensively.
The research yields that consumer credit behavior in times of crisis is affected by risk
perception. Moreover, the research yields important insights into secondary factors affecting
risk behavior, namely: age and nationality. Hopefully, these results stimulate further research
in this field to observe consumer behavior and offer guidance for practitioners to deal with a
future crisis.

78
Reference List
Alda´s-Manzano, Joaquı´n, et al. 2009. The role of consumer innovativeness and perceived
risk in online banking usage. International Journal of Bank Marketing. 2009, Vol. 27, 1, pp.
53-75.

American Express. 2009. American Express reports earnings from continuing Operations of
$342 million. New York : s.n., 2009.

Barber, Brad M. and Odean, Terrance. 2001. Boys will be Boys: Gender, Overconfidence,
and Common Stock Investment. The Quarterly Journal of Economics. February 2001, Vol.
116, 1, pp. 261-291.

Benton, Marques , et al. 2007.

The Boston Fed Study of Consumer Behavior and Payment Choice:
A Survey of Federal Reserve System Employees. Federal Reserve Bank of Boston. February
2007.

Blumberg, Boris, Cooper, Donald R. and Schindler, Pamela S. 2005. Business Research
Methods. Berkshire : McGraw- Hill Education, 2005.

Brooks, Chris. 2008. Introductiory Econometrics for Finance. New York, United States of
America : Cambridge University Press, 2008.

Bühner, Markus. 2003. Einführung in die Test- und Fragebogenkonstruktion. Schweiz :

Pearson Studium, 2003.

Business Wire. 2008. New Study shows declining Credit Card Use among Americans due to
Economic Downturn. 2008.

Chiang, Thomas C. and Zheng, Dazhi. 2010. An empirical analysis of herd behavior in global
stock markets . Journal of Banking & Finance. 2010, Vol. 34, 8.

Cockrill, Antje, Goode, Mark M. H. and Beetles, Andrea. 2009. The Critical Role of
Perceived Risk and Trust in Determining Customer Satisfaction with Automated Banking
Channels. Services Marketing Quarterly. 2009, Vol. 30, 2, pp. 174–193.

Cowen, Tyler. 2009. A Simple Theory of the Financial Crisis; or, Why Fischer Black Still
Matters. Financial Analysts Journal. 2009, Vol. 65, 3.

79
Cragg, John G. 1971. Some Statistical Models for Limited Dependent Variables with
Application to the Demand for Durable Goods. Econometrica. September 1971, Vol. 39, 5,
pp. 829-844.

Dash, Eric. 2008. Consumers feel the next Crisis: It's Credit Cards. s.l. : The New York
Times, 2008.

Deutsche Bundesbank. 2009. Zahlungsverhalten in Deutschland. Frankfurt am Main :

Deutsche Bundesbank, 2009.

Durkin, Thomas A. 2000. Credit Cards: Use and Consumer Attitudes, 1970-2000. Federal
Reserve Bulletin. September 2000, 9, pp. 623-634.

Elke U. Weber, Ann- Rene' e Blais, Nancy E. Betz. 2002. A Domain-specific Risk-attitude
Scale: Measuring Risk Perceptions and Risk Behaviors. Journal of Behavioral Decision
Making. August 2002, Vol. 15, 4, pp. 263–290.

Elke U. Weber, Christopher Hsee. 1998. Cross-cultural Differences in Risk Perception, but
Cross-cultural Similarities in Attitudes Towards Perceived Risk. Management Science.
September 1998, Vol. 44, 9, pp. 1205-1217.

Fellner, Gerlinde and Maciejovsky, Boris. 2007. Risk attitude and market behavior: Evidence
from experimental asset markets. Journal of Economic Psychology. 2007, Vol. 28, 3, pp. 338–
350.

Franco Modigliani, Richard Brumberg. 1954. Utility Analysis and the Consumption Function:
An Interpretation of Cross-Section Data. [book auth.] Kurihara. Post Keynsian Economics.
New Brunswick NJ : Rutgers University Press, 1954.

Gounaris, Kathleen M. and Prout, Maurice F. 2009. Repairing Relationships and Restoring
Trust: Behavioral Finance and the Economic Crisis. Journal of Financial Service
Professionals. July 2009, pp. 75-84.

Grill, Wolfgang and Perczynski, Hans. 2003. Wirtschaftslehre des Kreditwesens. Troisdorf :
BildungsverlagEINS, 2003.

Hair J. F., Black W. C., Babin B. J. 2006. Multivariate Data Analysis (6th ed.). New Jersey,
NJ, USA : Pearson Prentice Hall, 2006.

80
Halek, Martin and Eisenhauer, Joseph G. 2001. Demography of Risk Aversion. The Journal
of Risk and Insurance. 2001, Vol. 68, 1, pp. 1-24.

Hartog, Joop, Ferrer-I-Carbonelle, Ada and Jonker, Nicole. 2002. Linking Measured Risk
Aversion to Individual Characteristics. KYKLOS. 2002, Vol. 55, 1, pp. 3-24.

Heller, Gernot and Egan, Louise. 2009. Reuters. G7 signals worst of world recession may be
over. [Online] April 24, 2009. [Cited: March 21, 2010.]
http://www.reuters.com/article/idUSTRE53M52K20090425.

Hirschman, Elizabeth. 1979. Differences in Consumer Purchase Behavior by Credit Card

Payment System. Journal of Consumer Research. June 1979, Vol. 6, 1, pp. 58-66.

Jegadeesh, Narasimhan and Titman, Sheridan. 1993. Returns to Buying Winners and Selling
Losers: Implications of Stock Market Efficiency. Journal of Finance. 48, 1993, Vol. 1, 65-91.

Jung, Alexander, et al. 2010. Spiegel Online. [Online] May 03, 2010. [Cited: June 15, 2010.]
http://www.spiegel.de/spiegel/print/d-70327158.html.

Kahneman, Daniel and Tversky, Amos. 1979. Prospect Theory: An Analysis of Decision
Making under Risk. Econometrica. March 1979, Vol. 47, 2, pp. 263-291.

Kalogeras, Nikos, et al. 2009. Understanding Heterogeneous Preferences of Cooperative

Members. Agribusiness. 2009, pp. 90-111.

Kalogeras, Nikos, et al. 2009. Understanding Heterogeneous Preferences of Cooperative

Members. Agribusiness. 2009, Vol. 25, 1, pp. 90-111.

Kara, Ali, Kaynak, Erdener and Kucukemiroglu, Orsay. 1996. An Empirical Investigation of
US Credit Card Users: Card Choice and Usage Behavior. International Business Review.
1996, Vol. 5, 2, pp. 209-230.

Kristof De Wulf, Gaby Odekerken-Schröder, Dawn Iacobucci. 2001. Investments in

Consumer Relationships: A Cross-Country and Cross-Industry Exploration. The Journal of
Marketing. October, 2001, Vol. 65, 4.

Lopes, Lola. 1987. Between Hope and Fear: The Psyhology of Risk. Advances in
Experimental Social Psychology. 1987, Vol. 20, pp. 255-25.

81
Malmendier, Ulrike and Nagel, Stefan. 2009. Depression Babies: Do Macroeconomic
Experiences Affect Risk-Taking? Working Paper Series. [Online] March 2009.
http://ssrn.com/abstract=1369049.

MasterCard Worldwide. 2009. MasterCard Incorporated Reports Second-Quarter 2009

Financial Results. New York : s.n., 2009.

Mitchell, V-W. and Greatorex, M. 1993. Risk Perception and Reduction in the Purchase of
Consumer Services. Tbe Service Industries Journal. October 1993, Vol. 13, 4, pp. 179-200.

Morin, Roger A. and Suarez, A. Fernandez. 1983. Risk Aversion Revisited. The Journal of
Finance. 1983, Vol. 38, 4, pp. 1202-1216.

Myers, Stewart C. 1983. The Capital Structure Puzzle . The Journal of Finance. 39, 1983,
Vol. 3, 575-592.

Pablo, Amy L., Sitkin, Sim B. and Jemison, David B. 1996. Acquisition Decision-Making
Processes: The Central Role of Risk. Journal of Management. 1996, Vol. 22, 5, pp. 723-746.

Pennings, Joost M.E. and Garcia, Philip. 2004. Hedging behavior in small and medium-sized
enterprises: The role of unobserved heterogeneity. Journa of Bankinf nad Finance. 2004, Vol.
28, 5, pp. 951-978.

Pennings, Joost M.E. and Grossman. 2008. Responding to crises and disasters: the role of risk
attitudes and risk perceptions. Disasters. 2008, Vol. 32, 3, pp. 434-448.

Pennings, Joost M.E. and Wansink, Brian. 2004. Channel Contract Behavior: The Role of
Risk Perceptions, and Channel Members' Market Structures. Journal of Business. 2004, Vol.
77, 4, pp. 697-722.

Pennings, Joost M.E., Wansink, Brian and Meulenberg, Matthew T.G. 2002. A note on
modeling consumer reactions to a crisis: The case of the mad cow disease. International
Journal of Research in Marketing. 2002, Vol. 19, 1, pp. 91-100.

Prelec, Drazen and Loewenstein, George. 1998. The Red and the Black: Mental Accounting
of Savings and Debt. Marketing Sciense. 1998, Vol. 17, 1, pp. 4-28.

Riley, William B. and Chow, K. Victor. 1992. Asset Allocation and Individual Risk Aversion.
Financial Analysts Journal. November 1992, Vol. 48, 6.

82
Schneider, Friedrich and Kirchgässner, Gebhard. 2009. Financial and world economic crisis:
What did economists contribute? Public Choice. June 2009, pp. 319-327.

Shefrin, H. and Statman, M. 1985. The Disposition to Sell Winners Too Early and Ride
Losers Too Long: Theory and Evidence. Journal of Finance. 1985, Vol. 40, 3, pp. 777-790.

Shefrin, Hersh and Thaler, Richard. 1988. The Behavioral Life Cycle Hypothesis. Economic
Inquiry. October 1988, Vol. 26, 4, pp. 609-643.

Shefrin, Hersh. 2002. Beyond Greed and Fear. New York : Oxford University Press, 2002.

Sitkin, Sim B. and Pablo, Amy L. 1992. Reconceptualizing the Determinants of Risk
Behavior. Academy of Management Review. 1992, Vol. 17, 1, pp. 9-38.

Sjöberg, Lennart. 2000. Factors in Risk Perception. Risk Analysis. January 2000, Vol. 20, 1.

Smidts, Ale. 1997. The Relationship between Risk Attitude and Strength of Preference: A
Test of Intrinsic Risk Attitude. Management Science. March 1997, Vol. 43, 3, pp. 357-370.

Spiegel. 2009. Spiegel Online. [Online] Juli 27, 2009. [Cited: August 3, 2009.]
www.spiegel.de/wirtschaft/0,1518,druck-638558,00.html.

Statman, Meir. 2009. Regulating financial markets: Protecting us from ourselves and others.
SSRN. [Online] January 2009. [Cited: November 12, 2009.] http://ssrn.com/abstract=1334242.

Taylor, James W. 1974. The Role of Risk in Consumer Behavior. The Journal of Marketing.
1974, Vol. 38, 2, pp. 54-60.

Thaler, Richard H. 1987. Anomalies - The January Effect. The Journal of Economic
Perspectives. Summer, 1987, Vol. 1, 1.

Tigges, Claus. 2008. Jetzt droht die Kreditkartenkrise. www.fazfinance.net. [Online] October
23, 2008. [Cited: March 25, 2010.] http://www.fazfinance.net/Aktuell/Boerse-und-
Anlage/Jetzt-droht-die-Kreditkartenkrise-4549.html.

Tversky, Amos and Wakker, Peter. 1995. Risk Attitudes and Decision Weights.
Econometrica. November 1995, Vol. 63, 6, pp. 1255-1280.

Tyler, Katherine and Stanley, Edmund. 2007. The role of trust in financial services business
relationships. Journal of Services Marketing. 2007, Vol. 21, 5, pp. 334-344.

83
Visa Inc. 2009. Visa Inc. Posts Strong Fiscal Second Quarter 2009 Earnings Results and
Reaffirms 2009 Adjusted Diluted Earnings Per Share Guidance. San Francisco : s.n., 2009.

Weber, E. U. and Bottom, W. K. 1989. Axiomatic Measures of Perceived Risk Some Tests
and Extensions. Journal of Behavioral Decision Making. 1989, Vol. 2, 2, pp. 113-131.

Weber, E. U., & Hsee, C. 1998. Cross-cultural differences in risk perception, but crosscultural
similarities in attitudes towards perceived risk. Management Science. 1998, Vol. 44, 9, pp.
1205-1217.

Weber, Elke U. and Milliman, Richard A. 1997. Perceived Risk Attitudes: Relating Risk
Perception to Risky Choice. Management Science. February 1997, Vol. 43, 2, pp. 123-144.

Woolsey, Ben and Schulz, Matt. 2009. Credit card statistics, industry facts, debt statistics .
Credit card statistics. [Online] 2009. http://www.creditcards.com.

Zinman, Jonathan. 2009. Debit or Credit? Journal of Banking and Finance. 2009, Vol. 33, 2,
pp. 358-366.

84
Appendix 1

English Questionnaire

The Credit crisis – A Study on consumer behavior

Dear Participant,
As of 2007 the world got hit by the worst financial crisis until now. The past years were paved
by bad news about insolvencies, unemployment and the failure of our financial system. These
events may influence everyone and confront people with overindebtedness, bad debt and
financial distress.
We would kindly like to ask you a few questions on your credit behavior, taking about ten
minutes of your time. Therein, we will focus on credit card usage only. The term credit card is
used as an umbrella term for two basic types of credit cards, which you should both consider.
Credits cards known in the traditional sense
Debit cards: In this case money is directly withdrawn from the account of the card holder
when purchasing goods or services, similar to the common checking account (German EC-
Karte or Maestro Card with PIN).

Please, note that there are no correct answers. What matters is your personal opinion, your
perceptions and attitudes concerning credit and the risk of overindebtedness.
Of course your data will be treated confidentially!

Section 1: This section includes questions about your risk attitude and risk perception with
respect to your credit behavior. Risk behavior is related to the major risk when using credit
cards: overindebtedness and a possible private bankruptcy. According to law individuals can
file for personal bankruptcy under the bankruptcy code.

1. Have you reduced your purchases made with credit/debit cards during the financial
crisis because of fear for overindebtedness?
 Yes  No

1.a. If YES, by what proportion (relative to your total purchases) have you reduced your
purchases made with credit/debit cards? _____%

2. Have you switched to other payment methods (cash, check, etc.) during the financial
crisis to decrease new indebtedness ?
 Yes  No

IF YES, to which ones? ________________________________

3. Due to overindebtedness, for me paying with the credit/debit card during the crisis is
…..

Risky 1---2---3---4---5---6---7---8---9 Not Risky

4. For me overindebtedness through paying with the credit/debit card is worth the risk.

Agree 1---2---3---4---5---6---7---8---9 Disagree

85
5. I think my home country’s government has

Not much Competence 1---2---3---4---5---6---7---8---9 Much Competence

to limit financial risk issues to limit financial risk issues
in times of crisis in times of crisis

6. I am …….

Not willing to accept 1---2---3---4---5---6---7---8---9 Willing to accept

The risk of overindebtedness when the risk of overindebtedness when
using credit/debit cards in times of crisis using credit/debit cards in times of crisis

7. Due to overindebtedness, when using my credit/debit card in times of crisis, I am

exposed to...

Low Risk 1---2---3---4---5---6---7---8---9 High Risk

8. Financial institutions in Germany give me a feeling of trust regarding credit card usage in
times of crisis

Agree 1---2---3---4---5---6---7---8---9 Disagree

9. I am concerned about using a credit/debit card in times of crisis

Agree 1---2---3---4---5---6---7---8---9 Disagree

10. I think credit/debit card overindebtedness in times of crisis is risky

Agree 1---2---3---4---5---6---7---8---9 Disagree

11. I accept the consequences of credit/debit card overindebtedness in times of crisis

Agree 1---2---3---4---5---6---7---8---9 Disagree

12. What do you think is your chance of not being able to repay your credit in times of crisis?

Very Low 1---2---3---4---5---6---7---8---9 Very High

13. Before participating in this study, were you aware of the risk of overindebtedness?

 Yes  No

14. How would you evaluate your knowledge on payment methods?

No Knowledge 1---2---3---4---5---6---7---8---9 Much Knowledge

15. Financial institutions supply trustworthy information regarding the danger of personal
credit/debit card overindebtedness in times of crisis.

86
 Agree 1---2---3---4---5---6---7---8---9 Disagree

16. I prefer payment by credit/debit card over other payment methods in times of crisis

Agree 1---2---3---4---5---6---7---8---9 Disagree

Section 2: This section includes questions about your background

17. How many credit/debit cards do you possess?

______ private credit/debit cards ______ business credit/debit cards

18. How many times per month do you use your private credit/debit cards on average?
Consider payments in the internet, department stores as well as e.g. gas stations

______times per month

19. How high is your credit line on your credit/debit card? In case you own more than one,
the total amount.

 < € 500
 € 500 - € 999
 € 1000 - € 2.000
 > € 2000

20. From which source(s) do you derive information on financial matters in times of
crisis?

 Financial Institutions
 Media
 Newspapers
 Friends, Family, and /or Relatives
 Others, please specify ______________________________

21. What is your gender?

 Female  Male

22. What is your age?

_______ Years

23. What is your nationality? ___________________________

24. How many people are living in your household?

1
2
3
87
 4
 more than 4

25. Do you have children living at home?

 If yes, how many _____?  No

26. What is the highest level of education that you have received (finished or in progress)?

 Secondary General School (Haupt/-Realschule)

 High School ( A-Level, Abitur)
 University of Applied Sciences (Fachhochschule)
 University
 Other, please specify ______________________________

27. What is your current profession (Student, employee, etc) ?

_______________________________________

28. What is your monthly after tax income?

 < € 1.000
 € 1.000 - € 1.999
 € 2.000 - € 2.999
 € 3.000 - € 4.000
 > € 4.000

German Questionnaire

Die Kreditkrise – Eine Studie zum Konsumverhalten

Sehr geehrter Teilnehmer,

im Rahmen meiner Masterarbeit in International Business an der Universität Maastricht

mache ich eine Umfrage über das Risikoverhalten von Verbrauchern.
Im Jahr 2007 wurde die Welt von der bisher schlimmsten Finanzkrise getroffen. Die letzten
Jahre waren von schlechten Nachrichten über Entlassungen, Insolvenzen und des Versagens
unseres finanziellen Systems geprägt. Solche Geschehnisse beeinflussen jeden und
konfrontieren Verbraucher mit Forderungsausfällen, Überschuldung und finanziellen
Engpässen.

In diesem Fragebogen möchte ich Ihnen, in ca. zehn Minuten, gerne ein paar Fragen zu Ihrem
Kreditverhalten stellen. Hierbei werde ich mich nur auf die Kreditkarten-Nutzung
beschränken. Der Begriff Kreditkarte steht für zwei Arten von Zahlungskarten, die Sie beide
beachten sollten.

88
Kreditkarte im klassischen Sinn (gewährt dem Inhaber einen Kredit), mit der Möglichkeit
Kartenumsätze monatlich abzurechnen
Debitkarte oder EC-Karte: Umsätze werden direkt vom Konto mit Überziehungskredit
abgebucht.

Bitte beachten Sie, dass es keine falschen Antworten gibt. Allein Ihre persönliche Meinung
zum Thema Kredit und Verschuldung zählt. Ihre Angaben werden natürlich vertraulich
behandelt.

Abschnitt 1: Dieser Abschnitt beinhaltet Fragen zu Ihrem Risikoempfinden bezüglich

Verschuldung. Beachten Sie, dass Überschuldung zu Zahlungsausfällen und somit zu
einer Privatinsolvenz führen kann. Seit dem 01.01.1999 gibt es nach der Insolvenzordnung
die Möglichkeit für Verbraucher Privatinsolvenz zu beantragen.

1. Bezahlen Sie aus Angst vor Überschuldung weniger Einkäufe mit der Kreditkarte/ EC-
Karte in der Finanzkrise?

 Ja  Nein

1.a. Wenn Ja, um wie viel Prozent (relativ zu Ihren gesamten Einkäufen) haben Sie Einkäufe
auf Kreditkarte/ EC-Karte reduziert? _____%

2. Haben Sie in der Finanzkrise zu anderen Zahlungsmethoden gewechselt, um die

persönliche Neuverschuldung zu reduzieren (Barzahlung, etc.)?

 Ja  Nein

2.a. Wenn Ja, zu welchen? _____________________________

3. Ich finde das Zahlen mit der Kreditkarte/EC-Karte wegen Überschuldung in der
Krise...

Riskant 1---2---3---4---5---6---7---8---9 Nicht Riskant

4. Für mich ist es das Risiko der Überschuldung wert in der Krise mit Kreditkarte/EC-
Karte zu zahlen.

Stimme zu 1---2---3---4---5---6---7---8---9 Stimme nicht zu

5. Ich denke die deutsche Regierung besitzt

Keine Kompetenz 1---2---3---4---5---6---7---8---9 Hohe Kompetenz

das finanzielle Risiko für das finanzielle Risiko für
Privatpersonen in der Krise zu limitieren Privatpersonen in der Krise zu limitieren

6. Ich bin

Nicht Bereit 1---2---3---4---5---6---7---8---9 Bereit

Das Risiko von Überschuldung Das Risiko von Überschuldung
während der Krise auf mich zu nehmen während der Krise auf mich zu
nehmen
89
 7. Auf Grund von Überschuldung bei der Nutzung meiner Kreditkarte/EC-Karte in der Krise bin
ich einem

Niedrigen Risiko 1---2---3---4---5---6---7---8---9 Hohen Risiko

ausgesetzt ausgesetzt

8. Die Finanzinstitute geben mir ein Gefühl des Vertrauens bezüglich der Kreditkarten-
/EC-Karten-Nutzung in Zeiten der Krise.

Stimme zu 1---2---3---4---5---6---7---8---9 Stimme nicht zu

9. Ich mache mir Gedanken beim Einkaufen mit Kreditkarte/EC-Karte

Stimme zu 1---2---3---4---5---6---7---8---9 Stimme nicht zu

10. Ich denke, dass Kreditkarten-Überschuldung/EC-Karten-Überschuldung riskant ist

Stimme zu 1---2---3---4---5---6---7---8---9 Stimme nicht zu

11. Ich nehme das Risiko der Überschuldung durch Kreditkarten-/EC-Karten-Nutzung in Kauf

Stimme zu 1---2---3---4---5---6---7---8---9 Stimme nicht zu

12. Wie hoch ist Ihrer Meinung nach die Wahrscheinlichkeit, dass Sie Ihre Schulden
während der Finanzkrise nicht zurückzahlen können?

Sehr Gering 1---2---3---4---5---6---7---8---9 Sehr Hoch

13. Waren Sie sich des Risikos der Überschuldung durch Kreditkarten-/EC-Karten-
Nutzung bewusst, bevor Sie an dieser Studie teilgenommen haben?

 Ja  Nein

14. Wie schätzen Sie ihr Wissen über Zahlungsmittel ein?

Kein Wissen 1---2---3---4---5---6---7---8---9 Gutes Wissen

15. In Zeiten der Krise stellen Finanzinstitute zuverlässige Informationen bezüglich des
Risikos der Überschuldung durch Kreditkarten-/EC-Karten-Nutzung bereit.

Stimme zu 1---2---3---4---5---6---7---8---9 Stimme nicht zu

16. Bevorzugen Sie Zahlung mit Kreditkarte/EC-Karte gegenüber anderen

Zahlungsmitteln (Bar etc.) während der Finanzkrise?

Stimme zu 1---2---3---4---5---6---7---8---9 Stimme nicht zu

Abschnitt 2: Dieser Abschnitt beinhaltet Fragen zu Ihren Hintergrundinformationen.

90
17. Wie viele Kreditkarten/EC-Karten besitzen Sie?

______ private Kreditkarten/EC-Karten ______ geschäftliche Kreditkarten/EC-

Karten

18. Wie oft im Monat zahlen Sie durchschnittlich mit der Kreditkarte/EC-Karte (Bitte
beachten Sie Zahlungen im Internet, Einkaufscentern sowie z.B. Tankstellen)?

______mal pro Monat

19. Wie hoch ist Ihr monatliches Kredit-Limit (Dispositionskredit) auf Ihrer
Kreditkarte/EC-Karte? Im Fall von mehreren Karten, die komplette Summe

 < € 500
 € 500 - € 999
 € 1000 - € 2.000
 > € 2000

20. Von welchen Quellen beziehen Sie Information bezüglich finanzieller

Angelegenheiten in der Finanzkrise?

 Finanzinstitutionen
 Moderne Medien
 Zeitungen
 Freunde, Familie und Bekannte
 Sonstiges, bitte angeben ______________________________

21. Welches Geschlecht haben Sie?

 Weiblich  Männlich

22. Wie alt sind Sie?

_______ Jahre alt

23. Staatsangehörigkeit: _______________________________

24. Wie viele Menschen leben in Ihrem Haushalt?

1
2
3
4
 mehr als 4

25. Leben bei Ihnen noch Kinder mit im Haus?

 Ja, wie viele_____?  Nein

26. Was ist Ihr höchster Bildungsgrad?

91
  Haupt- / Realschulabschluss
 Abitur
 Fachhochschulabschluss
 Universitätsabschluss
 Sonstige, bitte angeben ______________________________

27. Welche Tätigkeit üben Sie derzeit aus (Student, Angestellter, Beamter, etc)?

____________________________________________

28. Wie hoch ist Ihr monatliches Nettoeinkommen?

 < € 1.000
 € 1.000 - € 1.999
 € 2.000 - € 2.999
 € 3.000 - € 4.000
 > € 4.000

Appendix 2

Figure 8 Check for normality

92
Figure 9 Check for normality

Figure 10 Check for homoscedasticity and linearity

93
Figure 11Check for normality

Figure 12Check for normality

94
Figure 13 Check for homoscedasticity and linearity

95