Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey

Abstract

The pricing and advertising of tied add-ons and overages have come under increasing scrutiny.Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing holders of "free" checking accounts, we find that promoting a large discount on the 60% APR charged for overdrafts reduces overdraft usage.In contrast, messages mentioning overdraft availability without mentioning price increase usage.Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming.We discuss implications for interventions to promote transparency in pricing and advertising, and for models of shrouded equilibria, limited attention, and salience.

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