This dissertation contains two studies. In Chapter 1, I implement a randomized intervention to measure the effect of reminders for timely payment of credit cards. While I find an 13% reduction in the cost of late payment fees paid, 31% of the users that avoid credit card late payments, incur instead checking account overdraft fees. This behavior leads to heterogeneous gains from the intervention with some users saving 15% in total fees paid, and others incurring increased fees of 5%. I analyze these results using theories of selective attention, and argue that when multiple tasks need to be performed, reminders that increase information about one task may crowd out attention from other less salient but equally important tasks. The results of this experiment suggest that when designing policy interventions, one size may not fit all, and targeting nudges to those who are more likely to benefit has the potential to significantly increase the gains from the intervention. Chapter 2, which is joint work with Jose L. Negrin, argues that in addition to their informative role, thresholds in financial contracts may act as implicit nudges in consumers' borrowing and saving decisions. Exploiting a change in the regulation of credit card minimum payments, we find that even individuals who seem to be unconstrained by the minimum payment are nonetheless anchored to it. Specifically, we find that a one percentage point increase (decrease) in minimum payments leads to a two percentage point increase (decrease) in actual payments. Furthermore, we shed light on the specific channel through which minimum payments affect the repayment decisions of unconstrained consumers, documenting the robust use of the multiple heuristic, the tendency of consumers to pay whole-number multiples of the minimum payment. Our results suggest that when individuals act "as-if" they were constrained by linear transformations of contractual thresholds, incorporating heuristics such as "as-if thresholds" into economic models may improve the accuracy of predictions. Chapter 3 contains all tables and figures for the studies in Chapters 1 and 2.

Last modified

• 03/27/2018

Creator

• Paolina Medina

DOI

• https://doi.org/10.21985/N2CD7Q

Subject

• Managerial Economics and Strategy

Keyword

• Behavioral Economics
• Household Finance

Date created

• 2017-01-01

Resource type

• Dissertation

Rights statement

• In Copyright