Choice Architecture to Improve Financial Decision Making

38 Pages Posted: 30 Nov 2017

See all articles by Jeffrey P. Carpenter

Jeffrey P. Carpenter

Middlebury College - Department of Economics; IZA Institute of Labor Economics

Emiliano Huet-Vaughn

UCLA

Peter Hans Matthews

Middlebury College - Department of Economics

Andrea Robbett

Middlebury College - Department of Economics

Dustin Beckett

Bureau of Consumer Financial Protection

Julian C. Jamison

University of Exeter Business School - Department of Economics; World Bank eMBeD (Mind, Behavior, and Development); Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); Innovations for Poverty Action

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Date Written: November 10, 2017

Abstract

We exploit the principles of choice architecture to evaluate interventions in the market for reloadable prepaid cards. Participants are randomized into three card menu presentation treatments - the market status quo, a regulation-inspired reform, or an enhanced reform designed to minimize attribute overload - and offered choices based on prior structural estimation of individual preferences. Consumers routinely choose incorrectly under the status quo, with tentative evidence the regulation-inspired presentation may increase best card choice, and clear evidence the enhanced reform reduces worst card choice. Welfare analysis suggests the regulation-inspired presentation offers modest gains, while the enhanced policy generates substantial benefits.

Keywords: consumer finance, prepaid card, choice architecture, attribute overload, experiment, structural estimation, time preference, risk preference, convex time budget, welfare

JEL Classification: C90, D04, D18, D91, G20

Suggested Citation

Carpenter, Jeffrey P. and Huet-Vaughn, Emiliano and Matthews, Peter Hans and Robbett, Andrea and Beckett, Dustin and Jamison, Julian C., Choice Architecture to Improve Financial Decision Making (November 10, 2017). Available at SSRN: https://ssrn.com/abstract=3078996 or http://dx.doi.org/10.2139/ssrn.3078996

Jeffrey P. Carpenter

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
802-443-3241 (Phone)
802-443-2084 (Fax)

HOME PAGE: http://community.middlebury.edu/~jcarpent/index.ht

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Emiliano Huet-Vaughn (Contact Author)

UCLA ( email )

4284 School of Public Affairs
Los Angeles, CA 90095
United States

Peter Hans Matthews

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
802 443-5591 (Phone)
802 443-2084 (Fax)

Andrea Robbett

Middlebury College - Department of Economics ( email )

Warner Hall
Middlebury, VT 05753
United States

Dustin Beckett

Bureau of Consumer Financial Protection ( email )

United States

Julian C. Jamison

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, EX4 4RJ
United Kingdom

World Bank eMBeD (Mind, Behavior, and Development) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

30 Wadsworth Street, E53-320
Cambridge, MA 02142
United States

Innovations for Poverty Action ( email )

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

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