Working Paper: NBER ID: w13822
Authors: Sumit Agarwal; John C. Driscoll; Xavier Gabaix; David Laibson
Abstract: Agents with more experience make better choices. We measure learning dynamics using a panel with four million monthly credit card statements. We study add-on fees, specifically cash advance, late payment, and overlimit fees. New credit card accounts generate fee payments of $15 per month. Through negative feedback -- i.e. paying a fee -- consumers learn to avoid triggering future fees. Paying a fee last month reduces the likelihood of paying a fee in the current month by about 40%. Controlling for account fixed effects, monthly fee payments fall by 75% during the first three years of account life. We find that learning is not monotonic. Knowledge effectively depreciates about 10% per month, implying that learning displays a strong recency effect.
Keywords: No keywords provided
JEL Codes: D1; D40; D8; G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Past fee payments (G50) | Current fee payments (E42) |
| Knowledge about fee avoidance (H26) | Future fee payments (G13) |
| Knowledge depreciation (D83) | Impact of previous fee payments (H22) |
| Account life (G52) | Monthly fee payments (G59) |