Unshrouding Effects on Demand for a Costly Add-On: Evidence from Bank Overdrafts in Turkey

Economics Department Working Paper No. 138

Yale University Economic Growth Center Discussion Paper No. 1044

41 Pages Posted: 22 Feb 2015 Last revised: 22 Jan 2016

See all articles by Sule Alan

Sule Alan

University of Essex - Department of Economics

Mehmet Cemalcılar

Yapi Kredi Bank A.S.

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); Centre for Economic Policy Research (CEPR)

Jonathan Zinman

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

Multiple version iconThere are 3 versions of this paper

Date Written: January 1, 2016

Abstract

The pricing and advertising of tied add-ons and overages have come under increasing scrutiny. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing holders of “free” checking accounts, we find that promoting a large discount on the 60% APR charged for overdrafts reduces overdraft usage. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. We discuss implications for interventions to promote transparency in pricing and advertising, and for models of shrouded equilibria, limited attention, and salience.

Keywords: contingent charges, deceptive advertising, transaction-linked credit, small-dollar loans, consumer banking, retail banking, deposit accounts

JEL Classification: D12, D14, G2

Suggested Citation

Alan, Sule and Cemalcılar, Mehmet and Karlan, Dean S. and Zinman, Jonathan, Unshrouding Effects on Demand for a Costly Add-On: Evidence from Bank Overdrafts in Turkey (January 1, 2016). Economics Department Working Paper No. 138; Yale University Economic Growth Center Discussion Paper No. 1044. Available at SSRN: https://ssrn.com/abstract=2564672 or http://dx.doi.org/10.2139/ssrn.2564672

Sule Alan (Contact Author)

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Mehmet Cemalcılar

Yapi Kredi Bank A.S. ( email )

Buyukdere Cad. YKB Plaza
Istanbul, Istanbul 34330
Turkey
+90 212 339 6223 (Phone)

Dean S. Karlan

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jonathan Zinman

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-0075 (Phone)

HOME PAGE: http://https://sites.dartmouth.edu/jzinman/

Innovations for Poverty Action

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
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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