There are only a few sources of credit for low-income consumers with a high default risk, such as the payday loan. Payday loan is a type of short-term consumer loan in which a consumer borrows a small amount with a one-time fee of 12-18% of the loan principal. Although the transaction seems reasonable on its own, the actual annual interest rate borrowers will face is substantial. This article will discuss whether there is a demand for payday lending despite its considerably high fees in two distinct economic models: the neoclassical economic model and behavioral economics. Additionally, this article will present the experiment, which will help understand possible behavioral economic biases that could change the use of payday loans. Standard economic theory indicates that individuals will only use a payday loan when the costs associated with forgoing the loan are significant. enough to justify the high interest rate (Homonoff 2013). Although an inexpensive source of credit can be obtained for many customers, low-income borrowers with a high risk of default may not qualify for these sources of credit. A third of payday loan customers have been denied access to credit (Logan & Weller 2009), and almost half of payday loan borrowers do not have a credit card (Agarwal et al. 2009) . As a result, the less privileged in society do not have the savings or resources to cope with a short-term financial crisis. “When desperate, people will accept any deal, no matter how bad, to satisfy an urgent financial obligation” (Thompson 2013). This claim implies that low-income people do not have the ability to opt out of an unfair deal. This evidence suggests that payday loans charge high interest because there is sufficient... middle of paper ...... implement subject randomization. To assess external validity, the study ensures that baseline information is obtained to allow non-participants to compare their variance. The standard economic perspective suggests that payday lending is only a choice for some people, and may be more beneficial in certain situations. despite the high fees associated with the loan. The behavioral economic view, on the other hand, holds that individuals make the irrational decision to take out a payday loan, but that this may reflect an optimistic bias and that they falsely believe that they will be able to repay in full upon payment. due date. This article examines whether optimistic bias and overconfidence could change payday loan usage, by conducting a survey to test their confidence level before taking out a payday loan, compared to the actual days that a consumer takes to repay..