Working Paper: NBER ID: w20956
Authors: Sule Alan; Mehmet Cemalclar; Dean Karlan; Jonathan Zinman
Abstract: The pricing and advertising of tied add-ons and overages have come under increasing scrutiny. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing holders of “free” checking accounts, we find that promoting a large discount on the 60% APR charged for overdrafts reduces overdraft usage. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. We discuss implications for interventions to promote transparency in pricing and advertising, and for models of shrouded equilibria, limited attention, and salience.
Keywords: overdrafts; consumer behavior; marketing; financial services; Turkey
JEL Codes: D12; D14; G02
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Promoting a 50% discount on the overdraft interest rate (G21) | Reduces overdraft usage (G21) |
| Messages promoting overdraft availability without mentioning price (G21) | Increases overdraft usage (G21) |
| Promoting a 50% discount on the overdraft interest rate (G21) | Induces changes in behavior (C92) |
| Messages promoting overdraft availability without mentioning price (G21) | Induces changes in behavior (C92) |
| Effects of messages promoting overdraft discounts dissipate over time (D15) | No significant differences observed five months post-experiment (C90) |