Search and Negotiation with Biased Beliefs in Consumer Credit Markets

Erik Berwart, Sean Higgins, Sheisha Kulkarni and Santiago Truffa

No 35605, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How do biased beliefs about the interest rate distribution affect search, negotiation, and loan terms in consumer credit markets? In collaboration with Chile's financial regulator, we conducted a randomized controlled trial with 112,063 loan seekers. Randomly eliciting beliefs about interest rates led participants to search more and obtain lower rates. Most participants underestimated both interest rate levels and dispersion. Showing them a price comparison tool we built using administrative data on the universe of consumer loans caused them to update their beliefs, negotiate more, obtain lower rates without searching more, and be more likely to take out a loan.

JEL-codes: D14 D18 D83 G51 (search for similar items in EconPapers)
Date: 2026-08
Note: CF DEV
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