Insufficient Sleep and Intraday Financial Decision Making

Using online lending microdata, I show that sleep has important consequences for household financial outcomes. Insufficient sleep raises default risk, particularly for loan applications made in the morning when the effects of a lack of sleep are strongest. For identification, I apply a spatial regression discontinuity design leveraging exogenous discontinuities in sunset time across time zone boundaries, supplemented by analyses utilizing daylight savings time shifts. The results suggest that a behavioral mechanism behind this effect is increased levels of heuristic thinking in the application process, signaling a lack of deliberation in acquiring additional credit under the conditions of poor sleep. These findings are consistent with laboratory studies demonstrating that sleep loss is associated with lower risk aversion and impulsivity. Overall, this study provides the first evidence of the impact of insufficient sleep on household behavior and welfare in credit markets. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.04031 .