Information Disclosure, Cognitive Biases, and Payday Borrowing

Can psychology-guided information disclosure induce borrowers to lower their use of high-cost debt? In a field experiment at payday stores, we find that information that makes people think less narrowly (over time) about finance costs results in less borrowing. In particular, reinforcing the adding-...

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Bibliographic Details
Published in:The Journal of finance (New York) 2011-12, Vol.66 (6), p.1865-1893
Main Authors: BERTRAND, MARIANNE, MORSE, ADAIR
Format: Article
Language:English
Subjects:
Access to credit
Bias
Borrowing
Cognitive biases
Credit cards
Debt management
Economic psychology
Fees
Financial information
Financial transactions
Information
Information dissemination
Interest rates
Lenders
Literacy
Loans
Payday loans
Paydays
Personal finance
Self control
Studies
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Summary:Can psychology-guided information disclosure induce borrowers to lower their use of high-cost debt? In a field experiment at payday stores, we find that information that makes people think less narrowly (over time) about finance costs results in less borrowing. In particular, reinforcing the adding-up dollar fees incurred when rolling over loans reduces the take-up of future payday loans by 11% in the subsequent 4 months. Although we remain agnostic as to the overall sufficiency of better disclosure policy to "remedy" payday borrowing, we cast the 11% reduction in borrowing in light of the relative low cost of this policy.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2011.01698.x