Conned by a Cashback? Disclosure, Nudges and Consumer Rationality in Mortgage Choice

Financial products with a cashback feature typically cost consumers more in the long run, but their popularity is rising in the mortgage and credit markets. Using a nationally representative online sample, we find that consumers who are younger, less educated and suffer from present bias are more likely to choose costly cash back mortgages. Through a series of experiments, we provide strong evidence that advanced disclosure improves financial decision making of customers and that negative nudges, or advertising, encourages prospective buyers into more costly mortgages. We also find evidence that consumers who demonstrate limited attention bias choose more expensive cashback mortgages that are financially equivalent at the point of drawdown.