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Pricing Psychology: Evidence from a Randomized Field Experiment in a Consumer Credit Market

Author

Listed:
  • Marianne Bertrand
  • Dean Karlan

Abstract

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 “treatments†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 “behavioral†responses to marketing treatments by canonical price elasticities and thereby to “price psychology†. 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.

Suggested Citation

  • Marianne Bertrand & Dean Karlan, 2004. "Pricing Psychology: Evidence from a Randomized Field Experiment in a Consumer Credit Market," Econometric Society 2004 North American Summer Meetings 619, Econometric Society.
  • Handle: RePEc:ecm:nasm04:619
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    References listed on IDEAS

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    Cited by:

    1. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, pages 505-540.

    More about this item

    Keywords

    prices; frames; psychology and economics; field experiment;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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