Pricing Psychology: Evidence from a Randomized Field Experiment in a Consumer Credit Market

Marianne Bertrand and Dean Karlan

No 619, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: This paper tests stylized facts and theories from behavioral economics and laboratory experiments using a randomized field experiment of our design. A major South African consumer credit lender issued 60,000 scripted direct mail solicitations where several marketing “treatments†were randomly assigned. These treatments were designed to test the empirical sensitivity of decision frames that have proven powerful in the lab but remain largely untested in the market. Examples include loss v. gain, level v. difference, and more v. less information. The Lender also randomly assigned interest rate offers, enabling us to scale “behavioral†responses to marketing treatments by canonical price elasticities and thereby to “price psychologyâ€. We will also test the extent to which our behavioral marketing exacerbated or ameliorated private information problems (if any) in this market. The mailing yielded over 6,000 new loans and preliminary evidence suggests that consumers responded strongly to both prices and frames.

Keywords: prices; frames; psychology and economics; field experiment (search for similar items in EconPapers)
JEL-codes: D12 D14 C93 (search for similar items in EconPapers)
Date: 2004-08-11

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Persistent link: http://EconPapers.repec.org/RePEc:ecm:nasm04:619

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