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Unshrouding: Evidence from Bank Overdrafts in Turkey

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  • SULE ALAN
  • MEHMET CEMALCILAR
  • DEAN KARLAN
  • JONATHAN ZINMAN

Abstract

Lower prices produce higher demand… or do they? A bank's direct marketing to holders of “free” checking accounts shows that a large discount on 60% APR overdrafts reduces overdraft usage, especially when bundled with a discount on debit card or autodebit transactions. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after the messages stop. These results do not square easily with classical models of consumer choice and firm competition. Instead, they support behavioral models where consumers underestimate and are inattentive to overdraft costs, and firms respond by shrouding overdraft prices in equilibrium.

Suggested Citation

  • Sule Alan & Mehmet Cemalcilar & Dean Karlan & Jonathan Zinman, 2018. "Unshrouding: Evidence from Bank Overdrafts in Turkey," Journal of Finance, American Finance Association, vol. 73(2), pages 481-522, April.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:2:p:481-522
    DOI: 10.1111/jofi.12593
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    Cited by:

    1. Johannes Abeler & David Huffman & Collin Raymond & David B. Huffman, 2023. "Incentive Complexity, Bounded Rationality and Effort Provision," CESifo Working Paper Series 10541, CESifo.
    2. Bianchi, Milo & Bouvard, Matthieu & Gomes, Renato & Rhodes, Andrew & Shreeti, Vatsala, 2023. "Mobile payments and interoperability: Insights from the academic literature," Information Economics and Policy, Elsevier, vol. 65(C).
    3. Seth Garz & Xavier Gine & Dean Karlan & Rafe Mazer & Caitlin Sanford & Jonathan Zinman, 2021. "Consumer Protection for Financial Inclusion in Low- and Middle-Income Countries: Bridging Regulator and Academic Perspectives," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 219-246, November.
    4. Geoffrey Nuwagaba & Festo Nyende & David Namanya, 2021. "Financing Options and Sustainable Small Business Growth in Uganda: An Optimal Model," International Business Research, Canadian Center of Science and Education, vol. 14(10), pages 1-85, October.
    5. Abeler, Johannes & Huffman, David B. & Raymond, Collin, 2023. "Incentive Complexity, Bounded Rationality and Effort Provision," IZA Discussion Papers 16284, Institute of Labor Economics (IZA).
    6. Bronson Argyle & Taylor D. Nadauld & Christopher Palmer, 2019. "Monthly Payment Targeting and the Demand for Maturity," NBER Working Papers 25668, National Bureau of Economic Research, Inc.
    7. Johannes Johnen, 2020. "Dynamic competition in deceptive markets," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 375-401, June.
    8. Johannes Johnen & Robert Somogyi, 2019. "Deceptive Products on Platforms," Working Papers 19-13, NET Institute.
    9. Mahsa Samsami & Ralf Wagner, 2021. "Investment Decisions with Endogeneity: A Dirichlet Tree Analysis," JRFM, MDPI, vol. 14(7), pages 1-19, July.

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