We provide evidence from field experiments with three different banks that reminder messages increase commitment attainment for clients who recently opened commitment savings accounts. Messages that ...mention both savings goals and financial incentives are particularly effective, whereas other content variations such as gain versus loss framing do not have significantly different effects. Nor do we find evidence that receiving additional late reminders has an additive effect. These empirical results do not map neatly into existing models, so we provide a simple model where limited attention to exceptional expenses can generate undersaving that is in turn mitigated by reminders.
Data, as supplemental material, are available at
http://dx.doi.org/10.1287/mnsc.2015.2296
.
This paper was accepted by Teck-Hua Ho, behavioral economics
.
Exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively. We show that exponential growth bias can explain two stylized facts in household ...finance: the tendency to underestimate an interest rate given other loan terms, and the tendency to underestimate a future value given other investment terms. Bias matters empirically: More-biased households borrow more, save less, favor shorter maturities, and use and benefit more from financial advice, conditional on a rich set of household characteristics. There is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication.
Microcredit institutions spend billions of dollars fighting poverty by making small loans primarily to female entrepreneurs. Proponents argue that microcredit mitigates market failures, spurs ...micro-enterprise growth, and boosts borrowers' well-being. We tested these hypotheses with the use of an innovative, replicable experimental design that randomly assigned individual liability microloans (of $225 on average) to 1601 individuals in the Philippines through credit scoring. After 11 to 22 months, we found evidence consistent with unmet demand at the current price (a roughly 60% annualized interest rate): Net borrowing increased in the treatment group relative to controls. However, the number of business activities and employees in the treatment group decreased relative to controls, and subjective well-being declined slightly. We also found little evidence that treatment effects were more pronounced for women. However, we did find that microloans increase ability to cope with risk, strengthen community ties, and increase access to informal credit. Thus, microcredit here may work, but through channels different from those often hypothesized by its proponents.
Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly ...when loans are extended at high interest rates. Popular skepticism about "unproductive," "usurious" lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection. The randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes. There is also some evidence that the loans were profitable.
Causal evidence on microcredit impacts informs theory, practice, and debates about its effectiveness as a development tool. The six randomized evaluations in this volume use a variety of sampling, ...data collection, experimental design, and econometric strategies to identify causal effects of expanded access to microcredit on borrowers and/or communities. These methods are deployed across an impressive range of locations—six countries on four continents, urban and rural areas—borrower characteristics, loan characteristics, and lender characteristics. Summarizing and interpreting results across studies, we note a consistent pattern of modestly positive, but not transformative, effects. We also discuss directions for future research.
We use a clustered randomized trial and over 16,000 household surveys, to estimate impacts at the community level from a group lending expansion at 110 percent APR by the largest microlender in ...Mexico. We find no evidence of transformative impacts on 37 outcomes (although some estimates have large confidence intervals), measured at a mean of 27 months post-expansion, across 6 domains: microentrepreneurship, income, labor supply, expenditures, social status, and subjective well-being. We also examine distributional impacts using quantile regressions, given theory and evidence regarding negative impacts from borrowing at high interest rates, but do not find strong evidence for heterogeneity.
The poor can and do save, but often use formal or informal instruments that have high risk, high cost, and limited functionality. This could lead to undersaving compared to a world without market or ...behavioral frictions. Undersaving can have important welfare consequences: variable consumption, low resilience to shocks, and foregone profitable investments. We lay out five sets of constraints that may hinder the adoption and effective usage of savings products and services by the poor: transaction costs, lack of trust and regulatory barriers, information and knowledge gaps, social constraints, and behavioral biases. We discuss each in theory, and then summarize related empirical evidence, with a focus on recent field experiments. We then put forward key open areas for research and practice.
Long-Run Price Elasticities of Demand for Credit KARLAN, DEAN; ZINMAN, JONATHAN
Review of economic studies/The review of economic studies,
07/2019, Letnik:
86, Številka:
4 (309)
Journal Article
Recenzirano
Odprti dostop
We use randomized interest rates, offered across eighty geographically distinct regions for twentynine months by Mexico’s largest microlender, to sketch the adjustment from a price change to a new ...equilibrium. Demand is elastic, and more so over the longer run; e.g. the dollars-borrowed elasticity increases from −1.1 in Year one to −2.9 in Year three. Credit bureau data do not show evidence of crowd-out, although this and other null results are imprecisely estimated. The lender’s profits increase, albeit noisily, starting in Year two. But competitors do not respond by reducing rates. These findings, together with other results, suggest that informational frictions are important, and that cutting rates furthered Compartamos Banco’s “double bottom line” of improving social welfare subject to a profitability constraint.
Firms spend billions of dollars developing advertising content, yet there is little field evidence on how much or how it affects demand. We analyze a direct mail field experiment in South Africa ...implemented by a consumer lender that randomized advertising content, loan price, and loan offer deadlines simultaneously. We find that advertising content significantly affects demand. Although it was difficult to predict ex ante which specific advertising features would matter most in this context, the features that do matter have large effects. Showing fewer example loans, not suggesting a particular use for the loan, or including a photo of an attractive woman increases loan demand by about as much as a 25% reduction in the interest rate. The evidence also suggests that advertising content persuades by appealing “peripherally” to intuition rather than reason. Although the advertising content effects point to an important role for persuasion and related psychology, our deadline results do not support the psychological prediction that shorter deadlines may help overcome time-management problems; instead, demand strongly increases with longer deadlines.
We designed and tested a voluntary commitment product to help smokers quit smoking. The product (CARES) offered smokers a savings account in which they deposit funds for six months, after which they ...take a urine test for nicotine and cotinine. If they pass, their money is returned; otherwise, their money is forfeited to charity. Of smokers offered CARES, 11 percent took up, and smokers randomly offered CARES were 3 percentage points more likely to pass the 6-month test than the control group. More importantly, this effect persisted in surprise tests at 12 months, indicating that CARES produced lasting smoking cessation.
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