Do Consumers Choose the Right Credit Contracts?

Sumit Agarwal, Souphala Chomsisengphet, Chunlin Liu and Nicholas S. Souleles

The Review of Corporate Finance Studies, 2015, vol. 4, issue 2, 239-257

Abstract: We analyze an experiment conducted by a large U.S. bank that offered consumers achoice between two credit card contracts, one with an annual fee but a lowerinterest rate and one with no annual fee but a higher interest rate. We findthat on average consumers chose the credit contract that minimized their costs.A substantial fraction of consumers (about 40%) still chose the suboptimalcontract. Nonetheless, the probability of choosing the suboptimal contractdeclines with the dollar magnitude of the potential error, and consumers withlarger errors are more likely to subsequently switch to the optimalcontract.

JEL-codes: G11 G21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:rcorpf:v:4:y:2015:i:2:p:239-257.

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