Pricing Psychology: Evidence from a Randomized Field Experiment in a Consumer Credit Market
This paper tests stylized facts and theories from behavioral economics and laboratory experiments using a randomized field experiment of our design. A major South African consumer credit lender issued 60,000 scripted direct mail solicitations where several marketing â€œtreatmentsâ€ were randomly assigned. These treatments were designed to test the empirical sensitivity of decision frames that have proven powerful in the lab but remain largely untested in the market. Examples include loss v. gain, level v. difference, and more v. less information. The Lender also randomly assigned interest rate offers, enabling us to scale â€œbehavioralâ€ responses to marketing treatments by canonical price elasticities and thereby to â€œprice psychologyâ€ . We will also test the extent to which our behavioral marketing exacerbated or ameliorated private information problems (if any) in this market. The mailing yielded over 6,000 new loans and preliminary evidence suggests that consumers responded strongly to both prices and frames.
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