Travelers' Conversion Behavior at Foreign Cash Withdrawals: An Experimental Study

Abstract

The introduction of dynamic currency conversion (DCC, also known as currency choice) at ATMs provides an ideal testing environment for traveler behavior when confronted with a currency choice. DCC provides travelers with the choice to conduct a transaction in local currency or in their home currency. This research note is based on a DCC experiment in which travelers were offered the choice between two withdrawal options. For each year of age, respondents were 0.4% more likely to opt for DCC. Gender also mattered, as females were 13.5% more likely to choose DCC. The level of the markup on the DCC transaction is not associated with DCC usage. Furthermore, the choice at the ATM transaction is unrelated to a traveler’s internal reference price, even though this price can be directly compared to a given exchange rate on the ATM screen. The empirical evidence thus rejects rational behavior by travelers.

Keywords: Currency conversion, Conversion strategies, Dynamic currency conversion, Cash withdrawals, Rational behavior, Reference price