Article2020

Side Effects of Nudging: Evidence from a Randomized Intervention in the Credit Card Market

93 citations0/0 files storedReview of Financial Studies

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Decision-Making and Behavioral Economics Financial Literacy, Pension, Retirement Analysis Experimental Behavioral Economics Studies

Abstract

Abstract This paper studies the direct and indirect effects of nudging, by means of a field experiment with a financial management platform in Brazil. Reminders for upcoming credit card payments reduced credit card late-payment fees by 14%, but increased overdraft fees in checking accounts by 9%. The unintended effect is concentrated in users with a history of overdraft use. These users experienced a net increase of 5% in total fees, while the rest experienced savings of 15%. The results provide clear insights for nudge design: like any policy action, nudges can have side effects, and one size may not fit all.

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References

1961The Economics of Information 2003Implications of rational inattention 2009Salience and Taxation: Theory and Evidence 2001The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior 2004Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving 2012Salience Theory of Choice Under Risk 2013Salience and Consumer Choice 2017Information Avoidance

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