Interest Rate Misperception in the Credit Card Market

41 Pages Posted: 24 Oct 2022 Last revised: 27 Nov 2023

See all articles by Tianyu Han

Tianyu Han

Haas School of Business, UC Berkeley

Xiao Yin

University College London

Date Written: November 18, 2023


Combining bank account data and surveys, we find that consumers have noisy perceptions of the interest costs of credit card debt. Underestimations in interest rates induce a higher debt, while overestimations do not affect borrowing. Undergoing an information treatment that informs the true costs of borrowing, consumers with underestimations upwardly revised their perceived interest rates and reduced debts. Despite a huge instantaneous response, consumers' misperceptions and debts reverted by more than 50\% six months post-treatment. To explain the short-living effects, we use consumers' banking app login behavior to show that the reversal of misperception is consistent with the ostrich effect where consumers selectively avoid unfavorable information when interest rates are high.

Keywords: Misbeliefs, Randomized Controlled Trials, Ostrich Effects, Information Acquisition

JEL Classification: E21, G40, G51, G53, M37

Suggested Citation

Han, Tianyu and Yin, Xiao, Interest Rate Misperception in the Credit Card Market (November 18, 2023). Available at SSRN: or

Tianyu Han (Contact Author)

Haas School of Business, UC Berkeley ( email )

Room F501
2220 Piedmont Ave
Berkeley, CA 94720
United States
510-327-5732 (Phone)


Xiao Yin

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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