Choice Architecture to Improve Financial Decision Making

39 Pages Posted: 27 Feb 2018

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 8, 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 8, 2017). Consumer Financial Protection Bureau Office of Research Working Paper No. 2017-04. Available at SSRN: https://ssrn.com/abstract=3131106 or http://dx.doi.org/10.2139/ssrn.3131106

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

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 (Contact Author)

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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