Diagnosing Consumer Confusion and Sub-optimal Shopping Effort: Theory and Mortgage-Market Evidence
AbstractMortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers' lack of knowledge and experience. We study the compensation that borrowers pay to mortgage brokers for assistance from application to closing. Two findings support the conclusion that confused borrowers overpay for brokers' services: (i ) A model of effective shopping shows that borrowers sacrifice at least $1,000 by shopping from too few brokers. (ii ) Borrowers who compensate their brokers with both cash and a commission from the lender pay twice as much as similar borrowers who pay no cash. (JEL D12, D14, G21)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 102 (2012)
Issue (Month): 7 (December)
Other versions of this item:
- Susan E. Woodward & Robert E. Hall, 2010. "Diagnosing Consumer Confusion and Sub-Optimal Shopping Effort: Theory and Mortgage-Market Evidence," NBER Working Papers 16007, National Bureau of Economic Research, Inc.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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PIER Working Paper Archive
14-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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