Do consumers choose the right credit contracts?

  • We find that on average consumers chose the contract that ex post minimized their net costs. A substantial fraction of consumers (about 40%) still chose the ex post sub-optimal contract, with some incurring hundreds of dollars of avoidable interest costs. Nonetheless, the probability of choosing the sub-optimal contract declines with the dollar magnitude of the potential error, and consumers with larger errors were more likely to subsequently switch to the optimal contract. Thus most of the errors appear not to have been very costly, with the exception that a small minority of consumers persists in holding substantially sub-optimal contracts without switching. Klassifikation: G11, G21, E21, E51

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Metadaten
Author:Sumit Agarwal, Souphala Chomsisengphet, Chunlin Liu, Nicholas S. Souleles
URN:urn:nbn:de:hebis:30-23443
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2005,32
Series (Serial Number):CFS working paper series (2005, 32)
Document Type:Working Paper
Language:English
Year of Completion:2005
Year of first Publication:2005
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/12/20
Tag:Banking; Borrowing; Consumer Credit; Consumer Finance; Consumption-Saving; Credit Cards
GND Keyword:Verbrauch; Sparen; Konsumentenkredit; Kreditkarte
HeBIS-PPN:19717244X
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht