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Do nudges reduce borrowing and consumer confusion in the credit card market?

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Adams, Paul, Guttman-Kenney, Benedict, Hayes, Lucy, Hunt, Stefan, Laibson, David and Stewart, Neil (2022) Do nudges reduce borrowing and consumer confusion in the credit card market? Economica, 89 (S1). S178-S199. doi:10.1111/ecca.12427

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Official URL: https://doi.org/10.1111/ecca.12427

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Abstract

We test the effects of two nudges designed to reduce credit card indebtedness; our study uses field experiments on 183,441 UK credit cardholders. All of the nudges have two components: (i) they explain the negative consequences of making only the min- imum required payment and (ii) they recommend and logistically facilitate payments in excess of the minimum required payment. Our first experiment studies nudges that appear on monthly credit card statements. Our second experiment studies letters and email nudges (apart from monthly statements), which are sent to cardholders who have chosen to make automatic minimum payments. Both interventions generate no effect on economic outcomes by the end of our half-year observation period. In a follow-up survey, we find 96% of survey respondents in the control group underestimate the re- payment time generated by making only required minimum payments. The nudges substantially reduce the magnitude of this optimistic bias, but the bias remains over- whelmingly common.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Warwick Business School > Behavioural Science
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Credit cards, Credit cards -- Economic aspects , Economics -- Psychological aspects, Finance, Personal, Consumer credit, Choice (Psychology) -- Economic aspects, Decision making -- Psychological aspects, Consumer behavior, Credit card fees -- Law and legislation -- Econometric models, Consumer protection -- Law and legislation -- Econometric models
Journal or Publication Title: Economica
Publisher: Blackwell Publishing
ISSN: 0013-0427
Official Date: June 2022
Dates:
DateEvent
June 2022Published
3 May 2022Available
28 March 2022Accepted
Volume: 89
Number: S1
Page Range: S178-S199
DOI: 10.1111/ecca.12427
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Open Access
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
ES/K002201/1[ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
ES/V004867/1[ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
ES/P008976/1[ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
ES/N018192/1[ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
RP2012-V-022Leverhulme Trusthttp://dx.doi.org/10.13039/501100000275
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