A major characteristic of credit markets is information asymmetry. To combat its problems, as credit rationing, principals can use a menu of contracts to screen clients with different risk level. We conduct a laboratory experiment to address an important question for such settings—does the framing of the offered menu of contracts interfere with the self-selection mechanism? The answer is yes. We find subjects' choices shift when the same (positive) outcomes of the same menu of contracts are presented in two different frames. Subjects exhibit loss aversion in their perception of the positive outcomes below the reference point, and self-selection fails to occur.
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