Diagnosing Consumer Confusion and Sub-optimal Shopping Effort: Theory and Mortgage-Market Evidence
Mortgage 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)
Volume (Year): 102 (2012)
Issue (Month): 7 (December)
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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.:
- Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-21, June.
- Antje Berndt & Burton Hollifield & Patrik Sandås, 2010.
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NBER Working Papers
16175, National Bureau of Economic Research, Inc.
- Antje Berndt & Burton Hollifield & Patrik Sandås, 2010. "The Role of Mortgage Brokers in the Subprime Crisis," NBER Chapters, in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
- Marsha Courchane & David Nickerson, 1997. "Discrimination Resulting from Overage Practices," Journal of Financial Services Research, Springer, vol. 11(1), pages 133-151, February.
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