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What Shapes Consumer Choice and Financial Products? A Review

Author

Listed:
  • Cheryl Lim

    (EDHEC Business School, Singapore 049145)

  • Souphala Chomsisengphet

    (Office of the Comptroller of the Currency, Washington, DC 20219)

  • Sumit Agarwal

    (McDonough School of Business, Georgetown University, Washington, DC 20057)

Abstract

Central to the field of consumer finance is that consumers make financial decisions that do not always coincide with the financial decisions ideally depicted in optimal economic models. In this review, we discuss developments in the field of household finance, focusing on how consumers make suboptimal financial decisions across different types of settings and factors that affect their decisions. Rather than conducting a comprehensive survey, we focus specifically on consumer choice in the context of research on credit card borrowing, housing and mortgage debts, investment and savings decisions, and spending and consumption. We also discuss financial product design and marketing, as well as the regulatory landscape of lenders of consumer financial products. We present five future research directions and considerations for researchers and policymakers.

Suggested Citation

  • Cheryl Lim & Souphala Chomsisengphet & Sumit Agarwal, 2017. "What Shapes Consumer Choice and Financial Products? A Review," Annual Review of Financial Economics, Annual Reviews, vol. 9(1), pages 127-146, November.
    • Handle: RePEc:anr:refeco:v:9:y:2017:p:127-146
    DOI: 10.1146/annurev-financial-110716-032417
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    More about this item

    Keywords

    choice inefficiencies; cognitive ability; consumer behavior; consumer bias; consumer credit; consumer finance; consumer financial regulation; financial products; mortgage debt; personal investments;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection

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