Rewards and Consumption in the Credit Card Market

65 Pages Posted: 5 Jul 2023 Last revised: 6 Nov 2023

See all articles by Tianyu Han

Tianyu Han

Haas School of Business, UC Berkeley

Date Written: November 3, 2023


Reward programs are often a prominent feature of credit cards. Collaborating with a leading bank in China, I combine proprietary consumer-level data and a survey to study the causal effect of rewards on consumption and consumers' subjective expectations. I leverage a fuzzy regression discontinuity (RD) design to show that a more generous reward design causes consumption increases across both reward-earning and non-reward-earning categories. Applying the fuzzy RD to the survey data, I find that consumers correctly understand the impact of reward design on reward-earning consumption but underestimate its effect on total consumption. Using a stylized model, I study the implications of this misperception for market structure and welfare. My calibration results show that consumer misperceptions incentivize banks to offer more generous rewards, which ultimately diminishes market efficiency and leads to a cross-subsidy from less to more sophisticated consumers.

Keywords: Credit Cards, Rewards, Consumption, Inattention, Budget Negligence

JEL Classification: D90, E21, G40, M31

Suggested Citation

Han, Tianyu, Rewards and Consumption in the Credit Card Market (November 3, 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)


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