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Comment by xiphias2 | Hacker News Reader

From what I have seen in poorer countries, in some cases the worst things have just started. I was dating a Colombian girl who got a 200% APR loan from a city near her during the lockdown to be able to pay her rent without a job, and hadn't even realized that it's 200% APR (15%/month didn't sound that bad to her). People are on the streets because the government wants to increase taxes, and they are already in huge debt. Now the government started to kill its own people in the daylight to stop the revolution.

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This reads like a standard payday loan, to be honest. Which is to say, it's absolutely taking advantage of people who already can't afford it, but it's also not a new phenomenon.

A standard payday loan might be 10% on a $100 advance, repaid after 2 weeks (when your next paycheck comes in). That translates to a 260% APR, even without considering compounding.

> 15%/month didn't sound that bad to her

This is why when economists talk about consumers acting as rational market participants I just laugh and shake my head.

Have they met people?

When your only options are (1) a loan at 15% while you’re unemployed but you get another 30-60 days of a roof over your head or (2) immediate homelessness then the high-interest loan is the rational choice.

I think Daniel Kahneman and Amos Tversky already put the “rational market participant” myth to bed for good.

Definitely, for the consumer. I think the idea that "rational market participant emerges when you get the average of a lot of people (ie. the firm) together to make a decision" still remains alive and well. There is sort of a Darwinian argument there, that in the long-run only the rational market participant remains in business and functioning as a firm.

The import of behavioral econ. definitely remains understated today. I am also interested in philosophical thinkers, like Elizabeth Anderson or Michael Sandel, that take questions like these and explore the implications that they might have for how we ought to structure society.

That seems likely to veer into begging the question or tautology territory.

Has it occurred to you that people taking payday loans don’t have a lot of options?

This isn’t someone deciding between 15% monthly and a nice 4% annual personal loan. This is someone deciding between 15% monthly and homelessness. Choosing the interest rate is rational.

Is it that high because of the risk? Why aren't competitors lowering the rates if it's that high and excessive.

Because it's that hard to find a job during COVID.

If she's not able to pay back the loan, she will be killed and her family is responsible for paying it back. The amount of undocumented suffering in the poor world right now is huge.

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