Attention Constraints and Financial Inclusion

Abstract

We show that attention constraints on decision-makers create barriers to financial inclusion. Using administrative data on retail loan-screening processes, we find that attention-constrained loan officers exert less effort reviewing applicants from lower socioeconomic status (SES) backgrounds and reject them more frequently. More importantly, when externally imposed increases in loan officers’ workloads tighten attention constraints, loan officers are even more prone to quickly rejecting low-SES applicants but quickly accepting very high-SES applicants without careful review. Such attention allocation further widens the approval rate gap between high- and low-SES applicants—a unique prediction of the attention-based mechanism. Our findings suggest that decision-makers’ attention constraints could amplify taste-based and statistical discrimination, which further exacerbates financial inclusion gaps.

Keywords: Attention Constraint, Financial Inclusion, Diversity, Retail Lending

JEL Classification: D83, D91, G21