Choice Architecture to Improve Financial Decision Making
39 Pages Posted: 27 Feb 2018
Date Written: November 8, 2017
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: Suggested Citation