Abstract

http://ssrn.com/abstract=770389
 
 

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What's Psychology Worth? A Field Experiment in the Consumer Credit Market


Marianne Bertrand


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Dean S. Karlan


Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab; National Bureau of Economic Research (NBER)

Sendhil Mullainathan


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Eldar Shafir


Princeton University

Jonathan Zinman


Dartmouth College; Innovations for Poverty Action; Jameel Poverty Action Lab; National Bureau of Economic Research (NBER)

July 2005

Yale University Economic Growth Center Discussion Paper No. 918

Abstract:     
Numerous laboratory studies report on behaviors inconsistent with rational economic models. How much do these inconsistencies matter in natural settings, when consumers make large, real decisions and have the opportunity to learn from experiences? We report on a field experiment designed to address this question. Incumbent clients of a lender in South Africa were sent letters offering them large, short-term loans at randomly chosen interest rates. Psychological features on the letter, which did not affect offer terms or economic content, were also independently randomized. Consistent with standard economics, the interest rate significantly affected loan take-up. Inconsistent with standard economics, the psychological features also significantly affected take-up. The independent randomizations allow us to quantify the relative importance of psychological features and prices. Our core finding is the sheer magnitude of the psychological effects. On average, any one psychological manipulation has the same effect as a one half percentage point change in the monthly interest rate. Interestingly, the psychological features appear to have greater impact in the context of less advantageous offers. Moreover, the psychological features do not appear to draw in marginally worse clients, nor does the magnitude of the psychological effects vary systematically with income or education. In short, even in a market setting with large stakes and experienced customers, subtle psychological features that normatively ought to have no impact appear to be extremely powerful drivers of behavior.

Number of Pages in PDF File: 59

Keywords: Behavioral economics, psychology, microfinance, marketing, field experiment, credit markets

JEL Classification: D01, C93, D12, D21, D81, D91, M37, O12

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Date posted: July 28, 2005  

Suggested Citation

Bertrand, Marianne and Karlan, Dean S. and Mullainathan, Sendhil and Shafir, Eldar and Zinman, Jonathan, What's Psychology Worth? A Field Experiment in the Consumer Credit Market (July 2005). Yale University Economic Growth Center Discussion Paper No. 918. Available at SSRN: http://ssrn.com/abstract=770389

Contact Information

Marianne Bertrand
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5943 (Phone)
HOME PAGE: http://gsbwww.uchicago.edu/fac/marianne.bertrand/vita/cv_0604.pdf
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-0341 (Phone)
617-876-2742 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Dean S. Karlan (Contact Author)
Yale University ( email )
Box 208269
New Haven, CT 06520-8269
United States
Innovations for Poverty Action ( email )
New Haven, CT
United States
Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab ( email )
E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Sendhil Mullainathan
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-496-2720 (Phone)
617-495-7730 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-1473 (Phone)
617-876-2742 (Fax)
Eldar Shafir
Princeton University ( email )
22 Chambers Street
Princeton, NJ 08544
United States
Jonathan Zinman
Dartmouth College ( email )
Hanover, NH 03755
United States
603-646-0075 (Phone)
HOME PAGE: http://www.dartmouth.edu/~jzinman/
Innovations for Poverty Action
New Haven, CT
United States
Jameel Poverty Action Lab
E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  49
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