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http://ssrn.com/abstract=875667
 
 

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


Dean Karlin


affiliation not provided to SSRN

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)

December 2005

NBER Working Paper No. w11892

Abstract:     
Numerous laboratory studies find that minor nuances of presentation and description change behavior in ways that are inconsistent with standard economic models. How much do these context effect matter in natural settings, when consumers make large, real decisions and have the opportunity to learn from experience? We report on a field experiment designed to address this question. A South African lender sent letters offering incumbent clients large, short-term loans at randomly chosen interest rates. The letters also contained independently randomized psychological "features" that were motivated by specific types of frames and cues shown to be powerful in the lab, but which, from a normative perspective, ought to have no impact. Consistent with standard economics, the interest rate significantly affected loan take-up. Inconsistent with standard economics, some of the psychological features also significantly affected take-up. The average effect of a psychological manipulation was equivalent to 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 and persist across different income and education levels. In short, even in a market setting with large stakes and experienced customers, subtle psychological features appear to be powerful drivers of behavior. The findings pose a challenge for the social sciences: they suggest that psychological nuance matters but may be inherently difficult to predict given the impact of context. Successful incorporation of psychological features into field studies is likely to prove a vital, but nontrivial, addition to the formation of more general theories on when, why, and how frames and cues influence important decisions.

Number of Pages in PDF File: 60

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Date posted: January 18, 2006  

Suggested Citation

Karlin, Dean and 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 (December 2005). NBER Working Paper No. w11892. Available at SSRN: http://ssrn.com/abstract=875667

Contact Information

Dean Karlin
affiliation not provided to SSRN
No Address Available
Marianne Bertrand (Contact Author)
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
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:  48
Citations:  33

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