Learning in the Credit Card Market
44 Pages Posted: 6 Apr 2008 Last revised: 26 Apr 2013
Date Written: April 24, 2013
We measure learning and forgetting dynamics using a panel with four million monthly credit card statements. Through negative feedback -- i.e. paying a fee -- consumers learn to avoid future fees. Paying a fee last month reduces fee payment in the current month by 40%. Monthly fee payments fall by 75% during the first four years of a card holder's account life. Consumers forget some of what they learn and exhibit a strong recency effect: knowledge depreciates about 10% or more per month. Higher-income borrowers learn twice as fast, and forget twice as slowly, as lower-income borrowers.
Keywords: household finance, consumer finance, credit cards, feedback, learning, learning-by-doing, recency
JEL Classification: D1, D4, D8, G2
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