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Do Nudges Reduce Borrowing and Consumer Confusion in the Credit Card Market?

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  • Paul Adams
  • Benedict Guttman‐Kenney
  • Lucy Hayes
  • Stefan Hunt
  • David Laibson
  • Neil Stewart

Abstract

We study nudges that turn out to have precise null effects in reducing long‐run credit card debt. We test nudges across two field experiments covering 183,441 UK cardholders. Our first experiment studies nudges added to monthly credit card statements. Our second experiment studies letters and email nudges (separate from monthly statements) sent to cardholders who signed up to automatically pay the minimum required payment. In a follow‐up survey to our second experiment, we find that 96% of respondents underestimate the time it would take to fully repay a debt if the cardholder made only the minimum required payment. The nudges reduce this confusion, but underestimation remains overwhelmingly common.

Suggested Citation

  • Paul Adams & Benedict Guttman‐Kenney & Lucy Hayes & Stefan Hunt & David Laibson & Neil Stewart, 2022. "Do Nudges Reduce Borrowing and Consumer Confusion in the Credit Card Market?," Economica, London School of Economics and Political Science, vol. 89(S1), pages 178-199, June.
    • Handle: RePEc:bla:econom:v:89:y:2022:i:s1:p:s178-s199
    DOI: 10.1111/ecca.12427
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    Cited by:

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    4. Manuel A. Utset, 2023. "Time-Inconsistent Bargaining and Cross-Commitments," Games, MDPI, vol. 14(3), pages 1-21, April.
    5. Jason Allen & Michael Boutros & Benedict Guttman-Kenney, 2024. "Credit Card Minimum Payment Restrictions," Staff Working Papers 24-26, Bank of Canada.

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    More about this item

    JEL classification:

    • N0 - Economic History - - General
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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