Using a large, non-student sample, we assess and differentiate between borrowers' Risk Aversion and Ambiguity Aversion levels and their willingness to pay to resolve a mortgage default settlement negotiation. Ambiguity Aversion is found to be negatively associated with willingness to pay for borrowers with high financial literacy in both the gain and loss domains, whereas personality traits matter more for borrowers with low financial literacy. This finding is important to policymakers in that they should adopt differential resolution strategies for defaulting borrowers based on these intervening variables.
Keywords: Ambiguity aversion; Experiment; Mortgage default; Prospect theory; Risk aversion.
© The Author(s), under exclusive licence to Springer Science+Business Media, LLC part of Springer Nature 2021.