Updated on October 25, 2024
Understanding the intention-action gap in debt delinquency
Past-due customers often don’t pay their bills due to the intention-action gap in delinquency. This describes the situation when a customer intends to repay their debt but either avoids taking any action to repay or takes an action that doesn’t result in repayment.
It’s caused by mental shortcuts that lead to misperceptions and drive a wedge between people’s intentions and their actions. After reading this blog, you’ll understand:
- What the intention-action gap is
- Why it exists for everyone
- What heuristics and cognitive biases are
- How heuristics and biases contribute to the intention-action gap in debt
A delinquent customer in a real-life intention-action gap scenario
Dee is a divorced mom of two. Her daughter is about to go to high school, and her son is the star of the 11th-grade hockey team. Usually, she gets by with her salary and alimony, but with both kids needing new clothes, devices, sports gear, and money for extracurricular activities, she’s been juggling bills for the past couple of months. She’s asked her ex to chip in, but he’s having a cashflow problem and needs a couple of weeks to get some money together.
Now her electric bill is 30 days past due. She’s at work when she receives an email from the electric company with her third payment reminder. It contains an offer to request a payment extension with both a self-service link and a phone number. Dee thinks to herself, “That’s a good option. I’ll call and do that—just until my ex comes through.”
But she doesn’t call. She’s worried one of her coworkers might overhear her conversation. Instead, she decides to deal with it later, in the privacy of her own home.
When she gets home, however, she’s tired and really doesn’t want to think about her financial situation. So she makes dinner for the kids and herself and settles in for an evening of helping them with their homework. And the same happens the next day, only that evening, it’s hockey practice. And so it continues… until the electric company disconnects her service and she needs to pay her bill plus late fees plus additional charges.
Dee never intended to fall into delinquency. Most past-due customers don’t. In fact, the overwhelming majority actually want to pay their bills on time. So what stands in their way?
What is the intention-action gap?
Dee’s story is a classic example of what applied behavioral scientists call “the intention-action gap.” The intention-action gap is the discrepancy between what people intend to do—and what they actually do.
There’s clearly a disconnect between what Dee plans to do and what she actually does.
Intention: Dee intends to call to request a payment extension.
Action: Dee delays (or avoids) requesting a payment extension. Dee does other, less challenging things.
The result is that Dee winds up being delinquent on her payment and having her service disconnected.
The intention-act gap exists for everyone
Each January, millions of people around the worlld decide to start or stop doing something to make their lives better in some way—whether it’s exercising more or improving their finances. But according to Forbes, only 20% of all people who make New Year’s resolutions (read: intentions) actually keep themselves accountable (take appropriate action). That means the other 80% are edging closer and closer to the intention-action gap.
So what’s stopping everyone from getting away from this gap?
Well, the human brain is a wonderful and powerful thing that helps us live in our environment. Consider this: Just to survive, we make thousands of decisions every day! But the overwhelming majority are so small and obvious, we don’t even notice. For instance, in one day, we make over 200 decisions just about food!
We simply don’t have the capacity to make every single one of our daily decisions consciously. We need our brain power to tackle bigger, more important things. So we do things on autopilot, without debating whether we really want to do them or if there’s a better way of doing them.
This is where heuristics and cognitive biases come into play.
What are heuristics?
Heuristics are mental “rules of thumb” that we use to facilitate quicker and more efficient decision making. These mental shortcuts allow us to navigate daily life without becoming overwhelmed by every single decision. In other words, we use heuristics for speed. For instance: Dee always pays her electric bill by calling the collections and customer service number because that’s what she’s used to doing.
What are cognitive biases?
However, when you go too fast, you can make mistakes—and that can cause cognitive biases that affect how we process information, prioritize tasks and responsibilities, and ultimately act. Using Dee’s example, she’s missing out on a faster, more private way of requesting a payment option through the self-service link in the email.
How do heuristics and biases contribute to the intention-action gap for past-due customers?
As we’ve seen, heuristics and cognitive biases can make debtors’ decision-making less accurate. And that’s what causes the intention-action gap.
Let’s examine which heuristic and cognitive bias are contributing to the intention-action gap in Dee’s situation.
Intention: To call the number in the email to request a payment extension. Why? To avoid late fees, service disconnection, and her account going into collections.
Action or lack of action: She doesn’t call.
The heuristic at play is avoidance. Dee is postponing (or avoiding) taking a necessary action that could help her improve her situation. The cognitive bias is cognitive dissonance: She doesn’t perceive herself as the kind of person who has debt issues, and she doesn’t want to be seen that way, either.
And there we have it: the intention-action gap.
Other examples of heuristics and cognitive biases in debt include prospect theory and optimism bias.
Prospect theory
Let’s say a debtor takes a specific, riskier-than-normal action because it might enable them to pay urgent debts—even though it could lead to more debt. This is called prospect theory.
Janet takes out a payday loan so she can make the payment on her car right now. But the high interest rate on the loan results in her having to repay much more than she originally borrowed.
Jon takes the money he earmarked for his mortgage payment to the casino in the hopes of “winning big” and being able to pay off all his debts in one go. Unfortunately, he loses everything and can’t pay any of his bills… including his mortgage.
So what’s the intention-action gap in these examples? Both Janet and Jon intend to repay their debt, but by taking risks to obtain more funds in the moment, they wind up further in debt.
Optimism bias
Being a “glass half full” kind of person is usually perceived as a good thing. Optimism keeps us motivated. But when someone’s overly optimistic about their future income or financial situation and as a result delays full repayment, it’s called optimism bias.
Josh only makes minimum monthly payments on his credit card because he believes his financial situation is going to improve in a few months. But it doesn’t, and his credit card debt keeps piling up.
Kim defers her student loans because she’s counting on getting a higher-paying job in the next year. But she gets laid off instead, and the interest on her student loans keeps accruing.
And the intention-action gap?
Again, both Josh and Kim intend to repay their debts, but they defer repayment, which leads to accumulating interest on their debts and puts them in an even more difficult position.
Heuristics and cognitive biases aren’t always negative in debt recovery
In this blog, we’ve discussed how the intention-action gap prevents delinquent customers from paying. We’ve also explained what heuristics and cognitive biases are and how they contribute to decision-making in debt.
Interestingly, we can use some of these same mechanisms to encourage people to get out of delinquency. Read Advanced strategies for more effective debt collection I to learn more.
