What's Psychology Worth? A Field Experiment in the Consumer Credit Market

Are psychological features powerful drivers of consumer behavior?

This paper describes the importance of psychology in bringing about significant changes in consumer behavior and decision making with the help of a study on a consumer credit market.

The findings challenge the scope of assumed individual rationality for consumption decision making propounded by economic theory. The study demonstrates that:

  • Seemingly insignificant variables, that have no apparent bearing on costs and benefits, can alter decision making.
  • This has important implications on the competitive strategies of firms which have no incentive for price competition and use psychological manipulations to raise demand.

The study conducts the experiment in an ideal market condition where consumers are motivated due to larger stakes. It looks at some additional findings such as:

  • Effect of psychological factors on less attractive offers;
  • Bearing of income or education groups on the take-up impact of the psychological features;
  • Characteristics of clients brought in as a consumer as a result of increase in take-up due to psychological factors.

The paper defines the parameters of the study in terms of the:

  • The borrower of consumer credit demand;
  • The lender of consumer credit supply;
  • Experimental design;
  • Sample characteristics;
  • Randomizations in two sets - Firstly in terms of interest rates and secondly in terms of marketing manipulations related to:
    • description of the loan offer;
    • comparison of offered interest rate to competitor rates;
    • demographic features;
    • promotional giveaway;
    • suggestion effects.

The paper presents the results for each manipulation separately. For the psychological manipulations, the impact on interest rate is quantified.

About this Publication

By Bertrand, M., Karlan, D., Mullainathan, S., Shafir, E. & Zinman, J.